The MasterBlog: As Options Fade, Lehman Is Said to Seek a Buyer - NYTimes
Subscribe to The MasterBlog in a Reader Subscribe to The MasterBlog by Email

MasterBlogs Headlines

Friday, September 12, 2008

As Options Fade, Lehman Is Said to Seek a Buyer - NYTimes

As Options Fade, Lehman Is Said to Seek a Buyer
By JENNY ANDERSON, ANDREW ROSS SORKIN and BEN WHITE

The New York Times

September 12, 2008


This article was reported by Jenny Anderson, Andrew Ross Sorkin and Ben White and written by Mr. White.

A day after Lehman Brothers sought to assure Wall Street that it could survive on its own, the beleaguered investment bank, urged on by federal officials, bowed to mounting pressure on Thursday and put itself up for sale.

As confidence in Lehman continued to drain away on Thursday, the bank, one of the oldest names on Wall Street, reached out to several potential buyers, including Bank of America and Barclays, the big British bank, according to people briefed on the negotiations. Lehman hopes to strike a deal within days.

In each case, the suitors are seeking help from the Federal Reserve to help make an acquisition palatable. They want the Fed to guarantee a part of Lehman’s troubled assets, these people said, similar to the way it backstopped the emergency sale of another foundering bank, Bear Stearns, in March.

But while the Treasury Department and Fed were working to broker an orderly sale of Lehman, it was unclear whether the Fed would stand behind any deal, particularly after the Bush administration took control of the nation’s two largest mortgage finance companies only days ago.

The test will come if potential buyers balk at a purchase without the Fed’s backing. If that were to happen, federal officials would be left to evaluate what risks a sudden collapse of Lehman might pose to the broader financial system.

The rapid decline of Lehman underscores that investors remain unnerved, with rumors about an institution’s problems quickly becoming a self-fulfilling prophecy, as other banks seek to distance themselves to limit their financial exposure.

Even so, while Lehman’s share price fell $3.03 on Thursday to $4.22, leaving it down nearly 94 percent this year, the shares of other financial companies, including the big thrift Washington Mutual, stabilized after days of losses.

Lehman has few options.

Its stock’s relentless decline has convinced Richard S. Fuld Jr., Lehman’s hard-charging chief executive, that the time has come to let go.

“He’s shell-shocked, but he knows he has to sell,” said one person who recently spoke to Mr. Fuld.

Lehman, which employs nearly 25,000 people around the world, tried to convince investors on Wednesday that it could survive on its own by selling divisions and spinning off commercial real estate assets, but its stock continued to decline. Any buyer would almost certainly cut thousands of jobs as it absorbed Lehman’s operations, which include a valuable money management division.

Bank of America is still trying to integrate its purchase of Countrywide, the giant home mortgage lender, but has long considered buying a New York-based investment bank.

Barclays has long insisted that it planned to build out its own investment banking presence in the United States, but Lehman’s price may prove too cheap to resist, people close to the matter said. Spokespeople for Lehman, Barclays and Bank of America all declined to comment.

Other bidders could include private equity groups such as Kohlberg, Kravis, Roberts & Company, which was already planning to bid for Lehman’s investment management division. However, the Federal Reserve is thought to prefer that Lehman be bought by a publicly traded bank with a more stable capital base. Potential suitors for Lehman’s investment management division have discussed securing financing for a deal with Bank of America, JPMorgan Chase, Goldman Sachs, Credit Suisse and others, people involved in the process said.

Should Lehman be sold by the weekend, it would complete a slow-burn collapse that began when the credit crisis began to take hold in summer 2007.

Lehman, whose roots date to its founding as an Alabama cotton exchange in the 1850s, got into trouble by expanding aggressively into the financing of real estate, including subprime mortgages.

In 2006, Lehman was the top underwriter of subprime mortgage securities with an 11 percent market share, according to Inside Mortgage Finance.

When the mortgage crisis first flared, many Lehman executives, and others on Wall Street, believed the crisis would be short-lived. Mr. Fuld was characteristically defiant.

“Do we have some stuff on the books that would be tough to get rid of? Yes,” he said last summer. “Is it going to kill us? Of course not.”

As the year came to a close, Lehman still looked as if it had dodged the bullet. While other many Wall Street firms and commercial banks reported huge write-downs and losses last year, Lehman reported $4.1 billion in profits. The board awarded Mr. Fuld a compensation package of more than $40 million.

To some, however, Lehman’s results were ominous. The bank reported gross write-downs of $3.5 billion — $2.2 billion in residential mortgages and $1.3 billion in commercial mortgages. A further deterioration in the market would have left Lehman dangerously exposed. And yet in February, the market still had faith that Lehman was more a winner than a casualty of the credit debacle. Its stock hovered around $66.

But in March, the shock over Bear’s rapid unwinding took its toll on Lehman, a powerful Wall Street institution but the smallest player after Bear. The stock went into free fall and the cost of buying protection against the default of its bonds soared.

Lehman went on the offensive, announcing that it would raise equity. Its stock soared 18 percent, but the respite was short-lived, In late May, a well-respected hedge fund manager, David Einhorn, made a case to an auditorium packed with other investors that Lehman was not marking its books accurately.

From mid-May to mid-June, the stock lost almost half its value. In late May, a team of executives led by Thomas Russo flew to Asia to meet with Korean investors. But almost immediately it was clear the Koreans would need more time than Lehman had to offer, and that the two sides were far apart on price.

Management shifted to Plan B, raising money closer to home. One executive, Larry Wieseneck, global head of finance, ended a trip to return and help raise $6 billion from investors including the New Jersey state pension fund.

But the turmoil at Fannie Mae and Freddie Mac and the continued deterioration in the housing market put further pressure on Lehman through the summer as it made the bank’s own real estate holdings less valuable.

Analysts began to fear an even larger third-quarter loss for Lehman, which the bank disclosed on Wednesday with its poorly received strategic plan to remain independent.

For Mr. Fuld, the moment of truth came when credit ratings agencies downgraded their assessments this week.

Moody’s said that if Lehman did not find a strategic buyer in the “near term,” the agency would downgrade the investment bank, making it difficult for some institutions to do business with the firm. “That’s when BlackBerrys started buzzing,” said one Wall Street banker. “It was clear Lehman would have to be sold.”


Copyright 2008 The New York Times Company


http://www.nytimes.com/2008/09/12/business/12lehman.html?_r=1&th=&adxnnl=1&oref=slogin&emc=th&pagewanted=print&adxnnlx=1221217298-GTSkz5POjhXaJSdgtaKS7w

No comments:

Post a Comment

Commented on The MasterBlog

Tags, Categories

news United States Venezuela Finance Money Latin America Oil Current Affairs Middle East Commodities Capitalism Chavez International Relations Israel Gold Economics NT Democracy China Politics Credit Hedge Funds Banks Europe Metals Asia Palestinians Miscellaneous Stocks Dollar Mining ForEx Corruption obama Iran UK Terrorism Africa Demographics Government UN Living Bailout Military Russia Debt Tech Islam Switzerland Philosophy Judaica Science Housing PDVSA Revolution USA War petroleo Scams articles Fed Education France Canada Security Travel central_banks OPEC Castro Nuclear freedom Colombia EU Energy Mining Stocks Diplomacy bonds India drugs Anti-Semitism populism Arabs Brazil Environment Irak Saudi Arabia elections Art Cuba Food Goldman Sachs Syria Afghanistan Hamas Lebanon Silver Trade copper Anti-Israel Egypt Hizbollah Madoff Ponzi Warren Buffett press Aviation BP Euro FARC Gaza Honduras Japan Music SEC Smuggling humor socialism trading Che Guevara Freddie Mac Geneve IMF Spain Turkey currencies violence wikileaks Agriculture Bolívar ETF Restaurants Satire communism computers derivatives Al-Qaida Bubble FT Greece NY PIIGS Republicans Sarkozy Space Sports BRIC CITGO DRC Flotilla Germany Globovision Google Health Inflation Law Libya Mexico Muslim Brotherhood Nazis Pensions Peru Uranium cnbc crime cyberattack fannieMae pakistan stratfor Apollo 11 Autos BBC Bernanke CIA Chile Climate change Congo Democrats EIA Haiti Holocaust IFTTT ISIS Jordan Labor M+A New York OAS Philanthropy Shell South Africa Tufts Ukraine bitly carbon earthquake facebook racism twitter Atom BHP Beijing Business CERN CVG CapitalMarkets Congress Curaçao ECB EPA ETA Ecuador Entebbe Florida Gulf oil spill Harvard Hezbollah Human Rights ICC Kenya L'Oréal Large Hadron Collider MasterBlog Morocco Nobel Panama Paulson RIO SWF Shiites Stats Sunnis Sweden TARP Tunisia UN Watch Uganda VC Water Yen apple berksire hathaway blogs bush elderly hft iPad journalism mavi marmara nationalization psycology sex spy taxes yuan ALCASA ANC Airbus Amazon Ariel Sharon Australia Batista Bettencourt Big Bang Big Mac Bill Gates Bin Laden Blackstone Blogger Boeing COMEX Capriles Charlie Hebdo Clinton Cocoa DSK Desalination Durban EADS Ecopetrol Elkann Entrepreneur FIAT FTSE Fannie Freddie Funds GE Hayek Helicopters Higgs Boson Hitler Huntsman Ice Cream Intel Izarra KKR Keynes Khodorskovsky Krugman LBO LSE Lex Mac Malawi Maps MasterCharts MasterFeeds MasterLiving MasterMetals MasterTech Microsoft Miliband Monarchy Moon Mossad Mugabe NYSE Namibia Nestle OWS OccupyWallStreet Oman PPP Pemex Perry Philippines Post Office Private Equity Property Putin QE Rio de Janeiro Rwanda Sephardim Shimon Peres Stuxnet TMX Tennis UAV UNHRC VALE Volcker WTC WWII Wimbledon World Bank World Cup ZIRP Zapatero airlines babies citibank culture ethics foreclosures happiness history iPhone infrastructure internet jobs kissinger lahde laptops lawyers leadership lithium markets miami microfinance pharmaceuticals real estate religion startup stock exchanges strippers subprime taliban temasek ubs universities weddimg zerohedge

Subscribe via email

Enter your email address:

Delivered by FeedBurner

AddThis

MasterStats