We had noted earlier that the price discussions around the possible sale by Lehman of a stake in its asset management operations valued the rest of the firm at close to zero. A story at Bloomberg has taken this line of thinking one step further.
From Bloomberg:
Lehman’s market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors’ valuation of the rest of the third-biggest U.S. securities firm is zero.
After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.
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Yves,
Are you calling a bottom?
In a black hole, there is no bottom, no time, no space.
FYI: The Schwarzschild radius (sometimes historically referred to as the gravitational radius) is a characteristic radius associated with every mass. It is the radius for a given mass where, if that mass could be compressed to fit within that radius, no known force or degeneracy pressure could stop it from continuing to collapse into a gravitational singularity.
> My interest in Schwarzschild has always been in wondering if the radius is on the inside or outside of the "black hole" i.e, it seems that the area associated with the mass is uniformly dimensional in two dimensions, but unable to account for containment of "the" field, i.e, if there is a black hole in the universe, then a black hole event can be observed from outside of that "event" — thus the radius of that space is not related to the space inside that event, in regard to the compression…
Nonetheless, the lack of dynamic transparency in this bottomless pit called wall street, is a jig saw puzzle that mixes reality and bits and pieces of fantasy into an illusion engineered into the latest market efficiency tricks that make the barriers of regulations and laws vanish — and obviously, when you have retarded crooks running around like lunatics at a circus, there has to be a name for this condition:
Megalomaniacs: A psychopathological condition characterized by delusional fantasies of wealth, power, or omnipotence.
Did you see how the revenue from investment banks in Asia had dropped off like 50%?
Its not that they have no value, they have a lot of value but also countless (literally) liabilities. Its a liability problem, not a “operational value” problem. The press is always confused on this point – same with Freddie and Fannie. Those traders, bankers, etc simply cannot add enough value every week to offset the massive liabilites comming due over the next few years.
Hank Paulson, here’s your opportunity to steal another company from shareholders! Time to put LEH into conservatorship. Call Fuld into your office and explain to him what you are going to do to him if he does not agree.
> My interest in Schwarzschild has always been in wondering if the radius is on the inside or outside of the "black hole" i.e, it seems that the area associated with the mass is uniformly dimensional in two dimensions, but unable to account for containment of "the" field, i.e, if there is a black hole in the universe, then a black hole event can be observed from outside of that "event" — thus the radius of that space is not related to the space inside that event, in regard to the compression…
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My understanding is that their is no space inside the radius. The radius is just where the tangent of the gravitational well becomes infinite.
I would think a black hole could be observed by a thin ring of light that has been gravitationally captured at almost the radius. The light may orbit many, many times before it escapes back out. In the meantime, it has taken on a coherency and intensity (by accumulation) that is proportional to its distance from the radius. It should be perfectly sharp and bright on the inside of the ring, and fall off in intensity and coherency from there.
US Counterparty Risk? : Bonds are banging around off the best levels, while spreads continue to run the show and unwinds are guiding their direction. The uncertainty that surrounds Fannie and Freddie has the market’s panties in a bundle with an assortment of readings being chatted up. The fact that treasury protection, in the form of CDS costs have blown up, with the protection intended to cover on defaults (yes…defaults), and counterparty risks concerns have shot up as well. The run-up is directly tied to the govt bailout of the GSEs and what it ultimately means for supply (ratings? That’s an issue for another day). WSJ’s Gaffin points out “five-year Treasury CDS have risen to $18,000, a record, and the CDR Counterparty Risk Index has widened to $162,900, suggesting real concerns across the credit spectrum.” Just saying.
The market has taken a hatchet to Lehman, certainly a drag across the financial spectrum, and the falling stocks have aided prices further, but the extreme areas bonds have been playing in are keeping a lid on things. The 10-yr ran up to knock the yield off to tag 3.57% (see 12:25 comment) but should get stuck, barring any big, bad headlines and with tomorrow’s calendar barren, the risk to treasuries will be to the downside. The curve was mixed with the benchmark 2-10-yr yield spread steepening while the 3-mo-10-yr flattened. Global bonds got a sympathy bid as players jumped on the safety band wagon. The 2-10-yr yield spread went out near the steepest levels since the Sunday night special bailout business, trading at 138.7 and likely to unwind further heading in to Wed.
The logic drives me crazy.
Merrils value = A+B+C
A=their single prize jewel
B=All their other business
C=their net assets minus liabilities.
If A>A+B+C, then B+C<0
But the article says B<0
You are neglecting that their liabilities may exceed their assets.