by millionairemind » Fri Sep 12, 2008 9:09 am
Lehman races to find buyer or investor
By Peter Thal Larsen, Francesco Guerrera and Chris Hughes in London and Greg Farrell in New York
Published: September 11 2008 19:24 | Last updated: September 12 2008 01:26
Lehman Brothers was on Thursday night in talks with potential buyers – including Bank of America – in a last-ditch attempt to stave off collapse after investors gave a thumbs-down to its survival plans.
Shares in Lehman, which had halved in value this week, plunged a further 41.8 per cent on Thursday as uncertainty rose about the bank’s ability to continue as an independent entity.
Lehman executives, led by chief executive d**k Fuld, began contacting rival banks in the morning after the shares tumbled in pre-market trading. By Thursday night, several banks were in talks with Lehman about buying all or part of it. In addition to Bank of America, those believed to be interested included Barclays .
Lehman, BofA and Barclays all declined to comment. Nomura, of Japan, which has also been considered a potential buyer, could not be reached for comment.
Bankers said the US authorities were urging financial institutions to continue to do business with Lehman, while putting pressure on the company to close a deal at whatever price the market was willing to pay. The Treasury and the Fed declined to comment. The Treasury said it was “talking to market participantsâ€.
As of late Thursday night, the Treasury and the Fed were not directly involved in negotiations over the sale of Lehman, and were not involved in negotiations on any government support for a deal.
However, the situation was evolving rapidly and it remained possible that a potential buyer could seek to secure a government sweetener of the kind that helped facilitate the sale of Bear Stearns to JPMorgan Chase in March. Some analysts speculated that the Treasury and the Fed could be asked to take equity risk on part of Lehman’s commercial property portfolio in the same way they agreed to take all but the first $1bn of losses on a $30bn portfolio of Bear mortgage-backed securities.
The US authorities are not keen to follow that precedent, but they could yet decide that the systemic dangers associated with the risk of even a slow-motion collapse of a leading investment bank would merit such action.
Pressure to find a buyer or investor mounted after investors concluded that plans outlined on Wednesday to spin off its troubled commercial property arm and shrink remaining operations were not sufficiently robust.
Moody’s, the rating agency, warned it would probably downgrade Lehman’s credit rating unless it quickly found a buyer. The cost of insuring against a default on Lehman debt rose as high as 805 basis points on Thursday, before falling later as it became apparent the bank was trying to find a buyer. Lehman’s 10-year bonds were trading at distressed levels.
Another option for Lehman is to agree rapidly a deal to sell a majority stake in its asset management subsidiary to acquire much-needed capital.
A number of private equity groups are expected to submit final bids for the business this weekend, people close to the bank said, although an agreement is likely to be some way off.
The turmoil weighed heavily on employees. “There are 25,000 people who are sitting there crying,†one banker said on Thursday. “I just hope there’s a solution.â€
Lehman Brothers was on Thursday night in talks with potential buyers, including Bank of America, in a last-ditch attempt to stave off collapse after investors gave a thumbs-down to its survival plans.
Shares in Lehman, which had halved in value this week, plunged a further 41.8 per cent on Thursday as uncertainty rose about the bank’s ability to continue as an independent entity.
Lehman executives, led by chairman and chief executive d**k Fuld, began contacting rival banks on Thursday morning after the shares took another tumble in pre-market trading. By Thursday night several banks were in talks with Lehman about buying all or part of it. In addition to Bank of America, those banks believed to be interested include Barclays.
Lehman, BofA and Barclays all declined to comment. Nomura, of Japan, which has also been considered a potential buyer, could not be reached for comment.
Any bank would be unlikely to mount a solo rescue without a form of support from the US Federal Reserve, similar to the facility the central bank provided to JPMorgan Chase when it agreed to rescue Bear Stearns in March.
Bankers said the Fed was keeping a close eye on the situation but it was unclear on Thursday night whether such government support would be on offer and whether it would only be extended to US banks.
Pressure on Lehman to find a buyer or investor mounted after both equity and debt investors concluded that plans outlined on Wednesday to spin off its troubled commercial property arm and shrink remaining operations were not sufficiently robust to retain the confidence of clients and trading counterparties.
Moody’s, the rating agency, warned it would probably downgrade Lehman’s credit rating unless it quickly found a buyer.
The cost of insuring against a default on Lehman debt rose as high as 805 basis points on Thursday, although pricing of default swaps tightened as it became apparent that the bank was trying to find a buyer.
Lehman’s 10-year bonds were trading at distressed levels, indicating investors’ belief that the bank was unlikely to survive on its own.
Another option for Lehman is to agree rapidly a deal to sell a majority stake in its asset management subsidiary to acquire much-needed capital.
A number of private equity groups are expected to submit final bids for the business this weekend, people close to the bank said, although an agreement is likely to be some way off.
The uncertainty swirling round Lehman spread to other US financial institutions on Thursday as investors focused on banks that face a possible shortage of capital or could be vulnerable to a loss of confidence.
Shares in Merrill Lynch, the Wall Street bank that has suffered heavy losses caused by the credit crunch, fell 16.6 per cent. Shares in both Wachovia and Washington Mutual recovered after being down by about 10 per cent in early trade.
The continued drop in Lehman’s share price, which has lost almost 90 per cent of its value in the past year, weighed heavily on employees, who between them own more than 30 per cent of the bank.
“There are 25,000 people who are sitting there crying,†one banker said on Thursday. “I just hope there’s a solution.â€
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch
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..................................................................<A fool gives full vent to his anger, but a wise man keeps himself under control-Proverbs 29:11>.................................................................
