Lehman Catharsis?
August 15th, 2008 10:59 pm | by John Jansen |The FT reports that Lehman Brothers is in discussions with several counterparties as the troubled investment bank seeks to purge its balance sheet of an undesirable portfolio of commercial loans. Lehman values the portfolio at $40billion and the FT story notes that the negotiators have varying ideas about the worth of the assets.
According to the FT story if Lehman can not derive what it views as fair value then it might create a new unit and spin off the various assets in the real estate portfolio.
This sort of story takes us closer to the day when this saga is over. It is this type of cleansing and restorative act which will finally set the system right.
3 Responses to “Lehman Catharsis?”
By Danny Kenny on Aug 16, 2008 | Reply
While I agree with you that these things need to be done, they should have been done months ago when there was actually some market for these things.
If they spin them off into a new unit, I don’t see how that gets rid of the risk. They will undoubtedly have to finance these either way, but spinning off into a new unit doesn’t make these magically disappear.
Lehman’s chances of surviving this crisis are slim to none. I doubt they have any access to the debt markets, and when equity holders realize the extent to which they will be diluted, I think they will run, not walk, away from the stock.
By s on Aug 17, 2008 | Reply
Agree with poster. Why does the world need LEH? Perhaps their counterparty risk is such that they are TBTF, but what does that say about startegies going forward. Entangle yourself until they have to save you. Yves has a good post on the FCB dumping GSE debt. You play the game you have not the one you want, admittedly. Nevertheless, when you play that game to the exclusion of others, whether becasue of arrogance or ignorance, the prior being operative here (we are the best of the worst, well come out first etc..) you eventually get called.
The notion that LEH is going to spin these assets off says it all. These guys are desperate. Whitney wa out with note that FI volumes are down 70% YTD. With the world constricting and electronic platforms growing, the numbe of firms has to narrow. So why unnaturally keep someone like LEH alive. The malinvestment goes on.
By Greg on Aug 18, 2008 | Reply
“Create a new unit and spin off the various assets in the real estate portfolio”? What on earth are they talking about? I keep seeing this idea mentioned as an alternative to selling assets that provides a way for banks to “solve” their problems with bad assets. I must confess that I am mystified. LEH is short on capital. How would “spinning off” $40 billion of assets – i.e., giving them away to stockholders and getting nothing in return – solve this problem? Wouldn’t it in fact leave LEH with $40 billion less capital, and thus bankrupt? Isn’t LEH in fact faced with the choice of either selling the assets or keeping them?