I heard this rumor from two sources, that Lehman is in its final day or two and Goldman is willing to buy the firm, and the second source, who volunteered the information, is sufficiently well plugged in that I trust the reading. This came from a former senior employee:
A couple friends of mine from LEH trading desk called me this a.m. to say that mgmt has taken employees aside to let them know that the end should come in next 24-48 hours. Ratings agencies apparently told them that the steps were not sufficient to prevent a d/g, and LEH mgmt asked them to hold off for a day or so to give them a chance to resolve situation (with sale of company).
Apparently GS is willing buyer, but is buyer of last resort from LEH’s perspective, b/c they would keep very few LEH employees.
Bloomberg tells us the stock market is already anticipating the rating agency downgrade and the stock is plummeting:
Lehman Brothers Holdings Inc., this year’s worst-performer on the Standard & Poor’s 500 Index, fell as much as 46 percent after four analysts said they cut their recommendations because the firm’s credit rating may be lowered.
Lehman fell $3.25 to $4 in composite trading on the New York Stock Exchange. Shares of the New York-based firm dropped 89 percent this year before today.
The tumble follows Lehman’s report yesterday that it had a record $3.9 billion loss for the third quarter. The firm plans to sell a majority stake in its asset-management unit and spin off real-estate holdings in an effort to shore up capital. Standard & Poor’s and Moody’s Investors Service said the moves may not be enough to avert a rating reduction.
“A downgrade would likely force Lehman to post additional collateral, increase short-term and long-term funding costs, and limit its ability to transact with partners which demand certain credit ratings,” Goldman Sachs Group Inc. analyst William Tanona wrote in a note today. The restructuring “fell short of what was necessary to lessen the bear case on the stock.”
A reduction in Lehman’s ratings of A2 at Moody’s and A at S&P would make it more expensive for the firm to borrow money and reduce the number of potential counterparties on financial transactions. Lehman would be required to post $2.9 billion in collateral if its ratings were downgraded, the company said in a May regulatory filing.“Although Moody’s believes liquidity remains firm and has not shown signs of material erosion, the potential for rapid franchise impairment in this environment remains a significant rating concern,” Moody’s said in a statement yesterday.
Lehman was cut to “hold” from “buy” by Citigroup Inc. analyst Prashant Bhatia and the firm was reduced to “no opinion” from “neutral” by Merrill Lynch & Co. analyst Guy Moszkowski.
“Liquidity and charges had seemed manageable, in our view, but the change in rating agency posture is an unexpected negative that may create a distressed sale situation,” Deutsche Bank AG analyst Mike Mayo wrote in a note today. He cut his rating to “hold” from “buy” and reduced his price target to $11 from $28 a share…
The third-quarter loss creates a “higher probability” of a cut in Lehman’s credit rating, Bhatia said in a note to clients.
“Confidence and perception issues are overwhelming Lehman’s franchise value,” Bhatia said. “We view raising capital in the very near-term as one of the most effective options to address the perception and confidence issues surrounding Lehman shares.”
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wow…
LEH mgmt asked them to hold off for a day or so to give them a chance to resolve situation (with sale of company).
I’m so glad that the ratings agencies are independent entities, giving us dispassionate advice about the health of companies.
That’s not going to help the NYC commercial real estate market…
I hope someone at some point will make note of the fact that Paulson’s unconstitional seizure of the property of FNM and FRE shareholders made it impossible for financial institutions to raise capital, thereby accelerating or perhaps even precipitating the end of LEH, and probably WM, and any other financial institution that needs to raise capital.
Goldman buying Lehman presupposes that the Fed will take a “first loss” position on Lehman’s toxic holdings.
Unfortunately for Lehman, their toxic holdings come in the form of CMBS and physical real estate. Its harder, obviously, for the Fed to take a position in the latter.
Firms with negative equity imply a cost to purchase unless debt holders take a haircut or the Fed takes the first loss. The other alternative would be for Goldman to do what Countrywide did: ring fence the acquired company so the parent has no exposure. That’s virtually impossible to pull off for an I-bank as no one would trade with the ring-fenced sub.
The real question is what happens to all that toxic debt. GS isn’t going to book that. This means another BS bailout by the fed and a new deposit to the Blackrock managed fund.
What a mess!!! :(
The communists are to blame. See here – http://moneyistheway.blogspot.com/2008/09/communists-gloating-over-lehman.html
If staff knew, this would leaking all over the place by now and counterparties would vanishing.
is the intent of this alleged deal primarily to facilitate the settlement of FRE/FNM CDSs?
So Lehman was rated a “Buy” yesterday by 2 firms.Are there any Harvard MBA’s out there who can explain this to me?
“…counterparties would [be] vanishing…”
Probably are.
@Tom Stone: only a fool without a clue follows stock recommendations. Studies show you will lose money thanks to their advice.
I second almost all comments today.
As far as the rating agencies are concerned, this crisis will go down in history as a case of regulators falling asleep on the switch. At a time where risks were thought to be low, everyone started taking higher risks thus rendering the system unmanageable.
The real question is what does Lehman have that Goldman would want or need, except for 1 less competitor? When I was at Goldman, we would not have touched this garbage. I think the rumor may remain only a rumor.
There are a few well connected employees that will get nepotism bonuses, as they sit in darkness, while this corruption continues without justice:
… Meanwhile, if he could have, Jeb Bush would have relieved Florida’s wealthy persons and corporate entities of their entire tax burden. As it stands he came very near his goal. Tax loopholes created during his administration for corporate income now shelter between $500 and $600 million that was counted as revenue before. $600 million more was lost to the state when Bush eliminated the tax on intangible properties (stocks and bonds) in January 2007.
Jeb Bush tried to privatize all things profitable and make the people assume all risk associated with investment. His program gave a leg up to charter schools and turned elements of the state’s water supply, public roads and social services over to wealthy investors. The lynchpin of his healthcare agenda was to turn Medicaid into a private managed health care system. That program was piloted in five counties. The Department of Children and Families was turned into a massive private gamble that money could be made off Florida’s most vulnerable children.
When investments went bad the working people of Florida ate the loss. In 2002 the state’s short-term investment and pension funds lost $334 million as Enron collapsed, three times the loss of any other fund in the nation. Jeb Bush’s minions invested in Edison charter schools when the stock was valued at $37 and got out when it was worth 14 cents. Another $500 million of the public’s money was lost to enable other corporate adventures.
But the worst was yet to come! Because although term limits forced Jeb Bush to give up his Tallahassee office in 2006, it did not thwart his plan for turning the apparatus of state government into his own personal cash cow. First he put one of his stooges, Coleman Stipanovich, in charge of making decisions for the multi-billion dollar Local Government Investment Pool and the Florida Retirement System. Then he got himself a spot on the Board of Directors of Lehman Brothers, the giant Wall Street financial services corporation. This unholy alliance has borne bitter fruits.
The now resigned Stipanovich made $1.5 billion in bad investments, $842 million of them purchased through Lehman Brothers. The pension fund now holds $756 million in worthless paper related to the housing market meltdown, almost 8% of its cash holdings. The state’s short-term investment fund is faced with similar losses. Jeb Bush and Lehman Brothers won’t be losing any sleep over it though because the vulnerability has been dumped on Florida’s 1.1 million current and retired state workers, hundreds of school districts and …
http://www.bestcyrano.org/THOMASPAINE/?p=538
Jeb Bush is not on Leh BoD
You better be right
Comrade Paulson Of the United States Socialist Republic of America and former head of goldman sachs probably went to meet his fellow comrade at chief commander at Goldman to tell him to buy Lehman so that they wouldn’t have to use more treasury money to bail another bank out. Comrade paulson reckons he can save the money and help create a magnificent statue of himself in times square to allow the masses to adore him. :-)
There’s no way GS would buy LEH. That’s the most absurd thing I’ve heard this week.
A government money market debacle unfolding in Florida is raising questions about former governor and presidential brother Jeb Bush’s possible involvement in the mess.
Florida froze withdrawals from a state investment fund earlier this week when local governments withdrew billions of dollars out of concern for the fund’s financial stability.
In the past few days, municipalities have withdrawn roughly $9 billion, nearly a third of the $28 billion fund (which is similar to a money market fund) controlled by the Florida’s State Board of Administration (SBA). The run on the fund was triggered by worries that a percentage of the portfolio contained debt that had defaulted.
A majority of this paper was sold to SBA by Lehman Brothers (nyse: LEH – news – people ). Bush, as the state’s top elected official, served on a three-member board that oversaw the SBA until he retired as governor in January. In August, Bush was hired as a consultant to the bank. Lehman spokesperson Kerrie Cohen, speaking on behalf of Bush, said they had no comment and would not say when the bank had sold Florida the paper. SBA did not return calls.
That story that Bush is on the BOD of Lehman is wrong and this is an example of using some third party links for information, I’m friggn sorry to have not verified that, but, this is perhaps God’s plan, that bloggers like myself will take more time to make sure that facts are fact and to thus to use the supercomuting powers of the internet to did deeper. I’m friggn sorry and hope to improve myself!!
Re: See: Jeb Bush: Lehman’s Secret Weapon
http://blogs.wsj.com/deals/2007/08/27/jeb-bush-lehmans-secret-weapon/
No family these days has better door-opening skills in Washington or corporate America than the Bushes. The family of the 41st and 43rd presidents is no stranger to Wall Street either. Jeb’s father, George H.W., used to serve as an adviser to Carlyle, and his grandfather was a partner at Wall Street firm Brown Brothers Harriman.
It is the second corporate gig for the former Florida governor, who stepped down after two terms in January. He already has joined the board of Tenet Healthcare.
Also: New function
In April 2007, Jeb Bush joined Tenet Healthcare’s board of directors.[44] The following August, Bush joined investment bank, Lehman Brothers, as an adviser in its private equity group.
http://en.wikipedia.org/wiki/Jeb_Bush
Also: Gov. Bush served as Florida’s 43rd governor from 1999 through 2006. He was the third Republican elected to the state’s highest office and the only Republican in the state’s history to be reelected. To further strengthen Florida’s economy, Mr. Bush launched a strategic plan to diversify the state’s business portfolio by securing the second campuses of both Scripps Research Institute and The Burnham Institute for Medical Research. After his service as governor, Mr. Bush joined Lehman Brothers as a consultant.
Does anyone know when Fannie and Lehman will be delisted?
haha GS buying LEH, definitely the most absurd thing ever…