Lehman Brothers (LEH)

[millionairemind]

Treasury, Fed Said to Call on Wall Street Chiefs to Back Lehman
By Bradley Keoun and Jesse Westbrook

Sept. 13 (Bloomberg) -- Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner urged the heads of Wall Street's biggest firms to find a solution to the plight of Lehman Brothers Holdings Inc., signaling their reluctance to use government funds to bail out the investment bank, two people familiar with the talks said.

Chief executives who attended the meeting at the New York Fed late yesterday afternoon included Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, Merrill Lynch & Co.'s John Thain and Bank of New York Mellon Corp.'s Robert Kelly, the people said, declining to be identified because the meeting wasn't public. Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated.

Kendrick Wilson, a former Goldman Sachs executive whom Paulson tapped last month as an adviser, helped lead the discussions, which ended without a specific plan, one of the people said. Bank of America Corp. CEO Kenneth Lewis did not attend because his firm is a potential bidder for Lehman, the person said.

Bank of America, the biggest U.S. consumer bank, is among the firms weighing an acquisition of some or all of the 158-year- old investment bank after it reported its worst quarterly loss this week and the shares plummeted 77 percent in the past five days, according to people familiar with the situation who declined to be identified because the negotiations are confidential.

Orderly Process

Spokesmen for the New York Fed and the SEC confirmed that the meeting took place with ``senior representatives of major financial institutions,'' and declined to comment further. Treasury is ``in regular contact'' with market participants, spokeswoman Jennifer Zuccarelli said earlier today.

Paulson doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said today. Unlike when the Fed committed $29 billion to help JPMorgan Chase & Co. take over Bear Stearns in March, Lehman now has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.

At the meeting yesterday, Paulson indicated he wants to avoid putting taxpayer money behind New York-based Lehman the way the government stepped in to guarantee the debt and mortgage- backed securities of home-loan financing companies Fannie Mae and Freddie Mac, said the people, who declined to be identified because the meeting was private. The government also wants to avoid a collapse of Lehman, which might disrupt U.S. financial markets.

Echoes of LTCM

The banks and brokers called into the meeting may be asked to contribute money to back Lehman long enough to unwind its trades, the people with knowledge of the discussion said. No agreement was reached and the discussion was preliminary, one person said.

Such an arrangement would be similar to the rescue of hedge fund Long-Term Capital Management LP, which failed in 1998 as Russia defaulted on its debt, roiling global markets. Spurred by the New York Fed, Wall Street firms including Lehman contributed cash to prop up LTCM.

Chief Executive Officer Richard Fuld, who participated in the LTCM talks and built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the investment bank, was pushed toward a forced sale this week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.

Government Protection

Potential buyers demanded some sort of government protection in the Bear Stearns case because of the mortgage-related assets the firm owned, which had plummeted in value. Since the collapse of the subprime mortgage market last year, banks have reported more than $510 billion of writedowns and credit losses on such assets.

Lehman still had a $50 billion mortgage portfolio at the end of August. While just $1.6 billion of that is in subprime mortgages, falling home prices and fear of a U.S. recession have brought down the prices of other mortgage-related securities in Lehman's holdings.

Lehman said Sept. 10 it would sell 55 percent of the investment unit as part of Fuld's plan to keep the firm independent. The company received bids for the unit yesterday from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., people familiar with the situation said.

Investment-Unit Bids
The bids value the unit, which includes the Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, said the people, who asked not to be named because the auction is private. KKR & Co. LP, which was weighing an offer, hadn't made a bid by a 5 p.m. deadline in New York yesterday, the buyout firm told people involved in the process.

Bank of America is considering a joint bid for the company with J.C. Flowers & Co. and China Investment Corp., the Financial Times reported yesterday, citing people it didn't identify.

Bankers from several firms were reviewing Lehman's books this week, according to people with knowledge of the situation, and a deal may be announced before Asian markets open Sept. 15, one of the people said. The New York-based investment bank announced the biggest loss in its 158-year history on Sept. 10, as devalued real estate assets led to $5.6 billion of writedowns in the third quarter.

Bank of America

Lehman dropped 14 percent to $3.65 at 4:15 p.m. in New York Stock Exchange composite trading yesterday. The shares have lost almost 95 percent of their value this year. Bank of America rose 68 cents, or 2 percent, to $33.74.

Ladenburg Thalmann & Co. analyst Richard Bove said in a note to clients this week that Bank of America is the most likely buyer for Lehman. The Charlotte, North Carolina-based bank would gain ``one of the best'' fixed-income desks in the U.S. and boost its research and capital markets businesses, Bove said.

Bank of America may team up with Barclays Plc and private equity firms to make an offer for Lehman, analysts at MF Global Securities Ltd. said.

``We're entering the end-game,'' said Rupert Della-Porta, the London-based chief operating officer of research firm Atlantic Equities.

When Bear Stearns collapsed in March, the Fed agreed to take on $29 billion of hard-to-sell assets from the company to induce JPMorgan to buy it. At the same time, the central bank opened a lending facility for brokerages, including Lehman.

The decisions prompted warnings from current and former regulators, who said that the Fed was creating a so-called moral hazard by encouraging firms to take on excessive risk in anticipation of government aid in the event their bets fail.

`Alter Precedent'

``What would be best is to alter the precedent with Bear Stearns,'' said former Fed governor Laurence Meyer, who is now vice chairman of Macroeconomic Advisers LLC, an economic forecasting firm in Washington.

Lehman had advanced discussions about a deal with state- owned Korea Development Bank, which offered as much as $6 billion for a 25 percent stake in the firm, or about $26 a share, people briefed on the talks said last week. Goldman Sachs Group Inc., the biggest U.S. securities firm, has no plan to buy Lehman without financial backing from the Fed or Treasury, a person briefed on the matter said Sept. 10.

London-based HSBC said on Sept. 10 it was ``highly unlikely'' to buy an investment bank while Josef Ackermann, the CEO of Deutsche Bank AG said he wasn't interested in ``parts or all of Lehman.''

[LenaHuat]

Bye Bye Brothers. May not exist come Monday

[ishak]

Will Lehman lose as Paulson and Wall Street play a game of chicken?
BloggingStocks, 13 Sep 2008

Hank Paulson is keenly aware that his Goldman Sachs Group and Treasury predecessor, Robert Rubin, helped save the market by encouraging the then-head of the New York Fed to force Wall Street leaders to team up to save Long-Term Capital Management's collapse from taking down the financial markets. Just as George W. Bush needed to recap Iraq, so now does Hank Paulson need to recap that famous meeting in lower Manhattan.

Bloomberg News reports that the meeting -- which took place yesterday afternoon -- involved a rogues gallery of Wall Street executives coupled with Paulson and New York Fed president Tim Geithner. The message these regulators delivered was reportedly a simple one: "You need to solve your own problems, and we're not going to provide any more capital." But Wall Street -- as represented by the likes of "Citigroup, Inc.'s Vikram Pandit, JPMorgan Chase's Jamie Dimon, Morgan Stanley's John Mack, Goldman's Lloyd Blankfein, and Merrill Lynch & Co., Inc.'s John Thain" -- are convinced that the Fed will blink when it comes to the 158 year old Lehman Brothers Holdings.

Bank of America reportedly wants to put in a bid for Lehman contingent on getting government help -- such as the $29 billion JPMorgan got in its Bear Stearns acquisition and its nationalization of Fannie Mae and Freddie Mac. After these two precedents, Paulson now wants to reverse himself. He says Lehman is different because people have known it was in trouble for a long time and it can access the Fed's discount window. But I think this could just be a little show for the President who is worried about how this will look to history. He may not realize that he has already opened the Pandora's Box of moral hazard and can't shut it now.

There was a bit of good news for Lehman buried in this game of chicken. "Lehman received bids for [its investment management unit] yesterday from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., [which value its] Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion," according to Bloomberg.

If one of these deals goes through this weekend, it could avert the need for an immediate takeover of the entire firm. But as of August, Lehman still held $50 billion worth of mortgages and it holds other mortgage-backed securities. Anyone taking over Lehman would need to take into account the true market value of these securities -- and the related write-downs could dwarf the purchase price of its equity (Lehman's market value stands at a mere $2.5 billion).

Ultimately it all comes down to too many mortgages -- which is derived from the French words for death (mort) and pledge (gage). I am not sure I understand how these words are connected but were it not for all these dead pledges to repay, Fannie, Freddie, Lehman and many other mortgage-holders would be doing just fine.

I think there will be more to come this weekend -- and a TV network that seems to know something will happen then -- asked me to appear at 8pm this Sunday night.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns Citigroup shares has no financial interest in the other securities mentioned.

[kennynah]

u know there's been a very old rumour that the biggest banker is the fed. Everyone, every bank n even the US govt owes it money. If so, guess who's balls is shrinking with an imminent collapse. The lender of cos. But then why tale such a hard stand? Simple... If u had loaned me up to my neck, n u r in Charlie big time hk, I'm not gonna dive in with another big loan to nail u out, when I can persuade other suckers to do so. At least I'll try. But otherwise, I'd better make sure u down do a Clark kent from top of uob plaza

[littlecupid]

Swallowing FN & FM 2 big giants is enough for indigestion... I think for we can say bye bye to LEH .... RIP

[winston]

Stats of the week:-

$649.2 million

Decline in value of Lehman Brothers CEO Richard Fuld's personal holdings in Lehman stock since January 31, 2008.

Shares are down over 90% since then.

[millionairemind]

Wall Street Journal
No deal reached yet to decide Lehman's fate
The outlines of plans to determine Lehman's fate emerged as it became clear that a clean sale of the entire firm would be too difficult to execute.
Carrick Mollenkamp, Deborah Solomon, Aaron Lucchetti, Serena Ng And Susanne Craig, Wall Street Journal
14 September 2008 05:09

The outlines of plans to determine the fate of Lehman Brothers Holdings Inc. emerged today even as it became increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute.

A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street. Executives from top banks in the U.S. and Europe huddled with federal regulators in an attempt to come up with plans to either buy pieces of Lehman or prepare for an orderly winding down of the firm in a manner that would minimize the collateral damage for the ailing global financial system.

After 6 p.m., the formal meeting ended for the day with no resolution, though some participants stayed behind to continue talking. "Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow," said a spokeswoman for the Federal Reserve.

At about 8 p.m., New York Fed President Timothy Geithner was still at the bank's headquarters. Officials from the New York Fed and various banks were expected to continue working through the night.

Under one plan, either Barclays PLC or Bank of America Corp. would buy Lehman's "good assets", such as its equities business, people familiar with the matter say. Lehman's more toxic, real-estate assets would be ring-fenced into a "bad" bank that would contain about $85 billion in souring assets. Other Wall Street firms would try to inject some capital into the bad bank to keep it afloat for a period of time so that a flood of bad assets don't deluge the market, damaging the value of similar assets held by other banks and insurers. The banks are also looking for the government to somehow financially backstop the bad bank.

The problem, though, is getting enough banks to back that plan. While teams of bankers are working through structures, it's clear that only a handful of banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, banks aren't keen to see a big rival such as Barclays or Bank of America walk away with valuable assets by only paying a pittance.

As of Saturday afternoon, Barclays, the U.K.'s third-largest bank in terms of market value, appeared to have more interest in pulling off a deal for Lehman's good assets. At about 3 p.m. on Saturday, Barclays President Robert E. Diamond Jr. was seen entering the New York Fed's employee entrance on Maiden Lane, carrying a briefcase.

Bank of America, an obvious buyer, appeared to be cooling toward a deal, people familiar with the matter. Of course, some of this could be the posturing that happens in any auction. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, and so far the government has been reluctant to do so.

Both Bank of America and Barclays remain fixated on the disposal of the bad real estate assets, and are less focused on evaluating Lehman's investment bank, said one person involved in the due diligence process. Things were moving so quickly Saturday that there was little time to do extensive employee interviewing that typically happens in company auctions. "It's all triage," said this person.

The real fear in the discussions, this person added, was that the fire-sale prices, or "marks" of Lehman's real estate book could set off a cascade of problems for other Wall Street firms. If those marks were made against other banks' portfolios, it could eventually force those firms to raise more capital, too. For firms' considering funding the bad bank, the calculation has thus become the price of that contribution against the price of a widescale markdown.

There could be further effects to such an event, with the banks calling in loans from hedge funds and other clients, in turn setting off more forced selling that further depresses asset and securities prices.

"Unless something is settled, it's going to be a bloodbath Monday," said this person.

In a meeting at the Federal Reserve Bank of New York in lower Manhattan, some participants also were discussing insurer American International Group Inc. and thrift-holding company Washington Mutual Inc. While those two financial firms aren't the focus of the emergency meeting, participants also are weighing the potential implications of their problems.

One person leaving the building said at least 100 people were gathered inside trying to settle the fate of Lehman, which has been staggered by its exposure to soured real-estate-related assets. By 5:15 pm, some Wall Street executives started to leave the New York Fed one at a time, getting in their cars inside a garage so they can't have their photos snapped.

Outside the Fed's downtown headquarters, a fleet of black towncars waited for bankers who were inside. At one point, the towncars blocked the narrow streets around the building, causing a traffic jam that had to be broken up by the Fed's uniformed guards. Meanwhile, bankers and Fed staffers milled around outside, smoking cigarettes and talking on their cell phones about subjects like counterparty risk.

"Everybody is hoping there will be a Wall Street solution to deal with Lehman's toxic assets," said one senior executive at a major bank. "It is a cheaper alternative than having everything unravel."

With it unclear whether the gap between the federal government and potential buyers can be bridged, a second group at the New York Fed is focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion.

On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments.

Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank.

One person familiar with the matter said large dealers contemplated showing each other all of their credit default swap trades with Lehman. Disclosing their positions may enable dealers to find ways to offset their positions with each other wherever possible. Later in the day, some traders were told that Lehman -- with the help of Federal Reserve officials -- will try to figure out which of its counterparties have CDS trades that can be offset. Those counterparties would be informed of the offsetting positions, following which they can unwind their respective swaps with Lehman and concurrently enter into new swap contracts with each other. For example, if one dealer has bought a swap from Lehman and Lehman sold a similar swap to another bank, the two banks could agree to face each other directly.

Such moves could help prevent individual firms from scrambling to find new counterparties to rehedge their positions with when the markets reopen on Monday, potentially unleashing turmoil across the credit markets. They could also help facilitate an orderly wind-down of Lehman's derivative positions, if that becomes necessary. Still, sorting out the firm's CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates.

It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.

Wall Street traders poured into their offices Saturday for emergency meetings to consider the actions they would take if Lehman is forced into liquidation. They broke into teams to evaluate their positions and exposure to Lehman in everything from energy trades to equity derivatives to credit,

One trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but still, "if they go into liquidation," it is going to be a bad situation on Monday.

A disorderly unwind of Lehman's derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets -- such as commercial real estate -- could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings.

Lehman has hired law firm Weil, Gotshal & Manges LLP to prepare a potential bankruptcy filing, according to a person familiar with the situation. The New York-based Weil has a leading bankruptcy practice and advised Drexel Burnham Lambert on its 1990 bankruptcy filing.

In a Lehman bankruptcy, the firm's brokerage units would have to enter a Chapter 7 liquidation, in which a court-appointed trustee would take over, liquidate the firm's assets and get Lehman customers back their money. In general, securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors.

In trying to hold firm to their no-bailout stance even while pressing for a deal, federal officials could try to pit Bank of America and Barclays against each other. But that leverage can work only if both banks stay in the discussions.

Bank of America and Barclays know each other very well, having considered a merger several years ago. More recently, Bank of America agreed to pay $21 billion for ABN Amro Holding NV's LaSalle Bank of Chicago in 2007. That deal came at a time when Barclays was trying to buy ABN and fend off a European consortium bid. Bank of America's purchase was seen at the time as helping that Barclays bid, which ultimately failed.

At Barclays, a big question will be whether CEO John Varley and his No. 2, Mr. Diamond, both agree on buying all or part of Lehman. Mr. Diamond is eager to expand Barclays's U.S. investment bank operations. But the unit, called Barclays Capital, is also responsible for write-downs the bank has recorded.

After 5 p.m., bank executives began leaving the meeting, some getting into cars inside a garage where they couldn't be photographed. Those seen leaving included Merrill Lynch & Co. Chairman and Executive John Thain and Citigroup Inc. CEO Vikram Pandit. Bank of New York Mellon Corp. Chairman and CEO Robert Kelly declined to comment.

While some executives had left the Fed meeting, those of other firms, including three carfuls of Barclays executives, remained at the Fed office past 6 p.m.

At least 20 New York Fed staffers left from another exit. They refused to say if they were done for the night.

[millionairemind]

Breaking news..

Lehman set for three-way break up: paper
Sun Sep 14, 2008 10:00am EDT Email | Print | Share| Reprints | Single Page | Recommend (-) [-] Text [+] LONDON

(Reuters) - Bank of America, Barclays and Goldman Sachs are expected to agree a deal as early as Sunday to buy stricken U.S. investment bank Lehman Brothers, Britain's Sunday Express reported.

The newspaper, without citing sources, said Bank of America would acquire the bulk of Lehman Brothers, including its mortgage assets.

Barclays, Britain's third-biggest bank, would take a smaller parcel including Lehman's asset management and fixed income businesses, while Goldman would take the rest, it said.

Barclays declined to comment. Goldman, Bank of America and Lehman Brothers could not immediately be reached.

The Sunday Express said the success of the plan depended on U.S. Treasury Secretary Hank Paulson hammering out a deal to get funding from wall Street's financial institutions.

Lehman has written down billions of dollars in assets in the last year, largely holdings of complex mortgage-backed securities, and over the last several months, it has been battling rumors of defecting clients and talk of a discounted takeover, leading to steep falls in its share price last week.

[blid2def]

Hmm. Does that mean we can assume that the banks that can afford (and/or are chosen) to makan other banks (e.g. JPM, BAC, GS) will be the ones we can bet on to be the "last men standing" at the end of the day?

[kennynah]

at 245am +8gmt 15sep, bloomberg reported that barclay's walked out of the deal to take over leh. Bac remains in talks