Re: Lehman the next Bear?
"...If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet..."
Apparently the Chinese haven't completely lost their appetite for buying bits of US financials...
From the FT:
Originally posted by GRG55
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"...If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet..."
From the FT:
BofA, JC Flowers, CIC planning joint Lehman Brothers bid
By Henny Sender in Hong Kong and Francesco Guerrera and Peter Thal Larsen in London
Published: September 12 2008 14:45 | Last updated: September 12 2008 15:46
Bank of America, JC Flowers & Co, the financial investor, and China Investment Co., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman Brothers...
A forced sale of Lehman Brothers at a fire sale price appears to be the most likely option in the wake of the massive drop in Lehman’s share price over the last few days, people familiar with the matter add. “The only question now is what price,” says one person who has been in discussions with Lehman over possible asset sales as well as with regulators.
While the details of any proposal haven’t yet been fully worked out, a bid from the BofA-led group may involve losses for holders of the debt as well as shareholders....
Regulators will most probably remain on the sidelines....
“Bear Stearns happened so quickly,” says one former Fed official. “At the time, there was no infrastructure to keep Bear alive. Now, there is an infrastructure to prevent a disorderly liquidation with the Fed willing to lend against good collateral.”
Moreover, while Bear Stearns was a big player in the credit default swap market, ran an important prime brokerage business and had a big role in the clearing system, Lehman poses less of a threat to financial stability, many of these people believe. ”Lehman may be the poster child for enough is enough,” says a senior executive at one major private equity firm that has been in talks with Lehman regarding possible asset sales....
Mr Flowers, a former Goldman Sachs partner who is close to BofA, currently manages about $3.2 bn of CIC’s money in a fund dedicated to taking stakes in financial institutions...
The CIC fund complements a $7bn fund that Mr Flowers has just raised from a wider group of investors. Mr Flowers has structured that fund so that he can exercise control rather than take minority stakes as private equity firms have done in the past. CIC may invest additional sums in Lehman alongside Mr Flowers and Bank of America...
There remains a slight chance that Lehman might be forced into a pre-packaged bankruptcy, some of these people believe....
Lehman’s plight is sure to raise questions both about regulatory oversight and the consequences of mark to market accounting. Some bankers and private equity tycoons including David Bonderman, co-founder of TPG and a minority investor in troubled Washington Mutual, believe that in times of stress, such accounting treatment can lead to a death spiral. That’s because the sale of a small portion of assets at distressed prices can force a firm to mark down the value of all its holdings, leading to rising funding costs—the lifeblood of a securities firm ---and plunging share prices.
Even before Lehman’s fate has been sealed, there has been quiet finger pointing, with the Securities & Exchange Commission likely to come under increasing criticism. That is because the SEC is supposed to monitor broker-dealers to ensure that they hold enough capital to support illiquid holdings such as Lehman’s real estate investments. But Lehman held these investments outside that entity, and thus avoided heavy capital charges to which regulators seemingly turned a blind eye.
If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet. So far, shareholders have been almost completely wiped out while debt holders have been protected.
By Henny Sender in Hong Kong and Francesco Guerrera and Peter Thal Larsen in London
Published: September 12 2008 14:45 | Last updated: September 12 2008 15:46
Bank of America, JC Flowers & Co, the financial investor, and China Investment Co., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman Brothers...
A forced sale of Lehman Brothers at a fire sale price appears to be the most likely option in the wake of the massive drop in Lehman’s share price over the last few days, people familiar with the matter add. “The only question now is what price,” says one person who has been in discussions with Lehman over possible asset sales as well as with regulators.
While the details of any proposal haven’t yet been fully worked out, a bid from the BofA-led group may involve losses for holders of the debt as well as shareholders....
Regulators will most probably remain on the sidelines....
“Bear Stearns happened so quickly,” says one former Fed official. “At the time, there was no infrastructure to keep Bear alive. Now, there is an infrastructure to prevent a disorderly liquidation with the Fed willing to lend against good collateral.”
Moreover, while Bear Stearns was a big player in the credit default swap market, ran an important prime brokerage business and had a big role in the clearing system, Lehman poses less of a threat to financial stability, many of these people believe. ”Lehman may be the poster child for enough is enough,” says a senior executive at one major private equity firm that has been in talks with Lehman regarding possible asset sales....
Mr Flowers, a former Goldman Sachs partner who is close to BofA, currently manages about $3.2 bn of CIC’s money in a fund dedicated to taking stakes in financial institutions...
The CIC fund complements a $7bn fund that Mr Flowers has just raised from a wider group of investors. Mr Flowers has structured that fund so that he can exercise control rather than take minority stakes as private equity firms have done in the past. CIC may invest additional sums in Lehman alongside Mr Flowers and Bank of America...
There remains a slight chance that Lehman might be forced into a pre-packaged bankruptcy, some of these people believe....
Lehman’s plight is sure to raise questions both about regulatory oversight and the consequences of mark to market accounting. Some bankers and private equity tycoons including David Bonderman, co-founder of TPG and a minority investor in troubled Washington Mutual, believe that in times of stress, such accounting treatment can lead to a death spiral. That’s because the sale of a small portion of assets at distressed prices can force a firm to mark down the value of all its holdings, leading to rising funding costs—the lifeblood of a securities firm ---and plunging share prices.
Even before Lehman’s fate has been sealed, there has been quiet finger pointing, with the Securities & Exchange Commission likely to come under increasing criticism. That is because the SEC is supposed to monitor broker-dealers to ensure that they hold enough capital to support illiquid holdings such as Lehman’s real estate investments. But Lehman held these investments outside that entity, and thus avoided heavy capital charges to which regulators seemingly turned a blind eye.
If the regulators refuse to offer a sweetheart deal to a potential buyer, it will change the trading dynamic around troubled financial institutions, creating uncertainty about what was becoming a safe one-way bet. So far, shareholders have been almost completely wiped out while debt holders have been protected.
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