I received this automated e-mail today from Institutional Investor, and the headline is indeed “Lehman is Tops in Fixed Income,” referring to II’s highly regarded investor research rankings:
Lehman Is Tops In Fixed Income
Adding 12 team positions in High Yield sectors, Lehman Brothers finishes with 47, 11 more than second-place JPMorgan, to lead the All-America Fixed-Income Research Team for a ninth straight year.
Now if management had only availed themselves of their analysts’ expertise, they might still be around today.
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Update: Fed leaves rates flat at 2%
Well, Lehman is the top topic of conversation in fixed income these days, if nothing else.
AIG Scenario Analysis
OK so I'm trying to map out the various AIG outcomes, and would be curious to hear what others think……I apologize in advance for the length.
1) GS & JPM, miraculously arrange the apparently required $70-75b facility to avert Armageddon. According to the most recent MSM reports (for what they have been worth recently), not surprising indicate that this alternative is dead.
2) AIG is miraculously able to raise capital through its own efforts – Any form of equity or somewhat normally structured debt is a non-starter, and they probably passed on their best option with PE firms on the weekend, if that was indeed the case, unless of course Hank Greenberg comes to the rescue.
Sale of financial assets or divisions – again if they had financial assets that were readily saleable they would have already done so. As far as the possibility of selling leasing, insuring or other operating units I am certainly out of my element on how such deals would come together. I would however have to agree with what some more knowledge readers have written here in expecting that it is not possible for such transaction to occur without significant due diligence, even if interested buyers could be found.
3) Some form of Federal support, which would likely involve:
A) a massive collateralized short term loan, (just as I was about to post, BBG states “bridge loan back on the table”) or
B) another conservatorship along the lines of FNMA & FHLMC.
Option A would come at a significant political cost, something McCain apparently wants to avoid, although who knows if his opinion matters or not in this situation. Such a federally backed loan, no matter how much lipstick you put on it will not look good to Main St. Combined with the fact that from what I have read, AIG does not have the cleanest book on the street, such a loan could result in potentially large losses to taxpayers.
Option B given current political climate, is arguably much more palatable if it were to be structured in such a way that enough pain was delivered to "risk takers" without crippling the global banking system. Common, preferred and sub-debt get zero, which I appreciate, would have tremendous (as well as unforeseen) implications, certainly 10, if not 11 digit implications. Again, not my place to say, but something along these lines structured by people with much more information and expertise than myself might be possible. Of course the very, very tricky issue is the outstanding CDS which constitutes, not all of the systemic risk inherent in an AIG failure, but certainly a very large chunk of any potential unpleasantness.
4) AIG is left to fend for itself – simply stated, global financial shutdown.
I appreciate the many variations of the above scenarios, and have surely left out many relevant details, but believe these 4 general options represent the potential outcomes as far I have been able to come up with so far. Unfortunately I think we are looking at some form of option 3B, with an outside, but real possibility of option 4. And as far as full disclosure, I trade actively and have a very negative view on equities and credit.
I don’t buy the global financial shutdown theory with an AIG failure.
If the Fed itself announced that there was a real risk of global financial shutdown, I would think the market would take that as bad news and react accordingly.
Today, the market is acting like there is no such risk.
Either the fix is totally in and nobody told us, or the fix is totally in and nobody told us.
Breaking: Barclay’s purchases Lehman trading business.
K, the market has been anything but rational so far. Tell the market that the new CERN accelerator has caused the earth to irreversibly dissolve into quantum foam and the market hears, “Finally, the worst is behind us! Rally time!” The market had no clue at Dow 14,000 and it has no clue now.
……number 5. There is no solution. The outstanding debt can not be covered only printing money delays the financial collapse worldwide. Confirmed when we are in depression….10,500 and below on the SOW will be a good indicator.