Lehman’s days are looking numbered as the crisis of confidence continues, measured both in its stock and credit default swaps prices. The reason is simple: Lehman, despite its protestations otherwise, needed either to shrink its balance sheet more or raise more equity. Despite its claims that its $28 dollar stock sale was oversubscribed, we heard stories that quite a lot of arm-twisting was needed to get funding done. The recent performance of the shares would seem to bear that out.
So why the downdraft today, in a market that was only somewhat unkind to other financial stocks? First was the rumor of a takeunder. From Bloomberg:
“We’re hearing that there may be a possibility of Lehman being taken over,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $6 billion in San Antonio. “There hasn’t been any positive news on this firm for the last couple weeks and the value of the deal might not be in the best interest of Lehman shareholders.”
Forbes (hat tip reader Dwight) singled out Barclays as a possible suitor:
Another vote of no confidence came from the credit default swaps market, as noted by the Wall Street Journal’s Marketbeat, which also observed that end-of-quarter considerations may have player into the stock sales today (maybe, but why wait until the last day to act?):
Lehman has been one for the brave and nervous for months now, ever since Bear Stearns Cos. imploded in March. The company got through that month, but as credit concerns have come to the fore again, it’s been a popular target for short-sellers. Options activity leans to the side of put-buying as the stock sinks. Quarter-end issues could be coming into play, as some dump shares of a stock they don’t want listed among their holdings…
The company’s credit-default swaps, which measure the risk of default, cost more than on Friday. To protect $10 million in bonds for five years, it costs a bondholder $285,000, compared with $275,000 on Friday.
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Barclays? It ought to be a “bailee” not a “bailer.”
(warning: I am not an apologist for LEH)
fundamental story aside, one should always look very carefully and suspiciously upon end-of-month, and especially calendar end-of-quarter marks – particularly those of securities that have significantly outperformed or underperformed during the interval – all the more-so for the underperformers since the rollback of zero-plus-tick rule. Oh, how I would love to see the time&sales data (with ultimate-customer look-throughs) on the last couple of days of the month and compare that to position shifts.
yeah, LEH may be toast, or not, who knows. I don’t have a position or an opinion, but no one should be surprised if those with meaningful short positions and/or large fund complexes with below below benchmark-weight positions are scoring the maximum extra bragging points (or accrued incentive fees), or merely hoping to keep the ship afloat for yet one quarter more.
One day, authorities may have the technology, along with the will and the mandate, to aggregate an investors’ positions across public and private markets, and instruments to see (or infer) who’s being naughty and who’s playin’ nice.
Clearly the Barclay’s rumor (which started making the rounds just after mid-day) accelerated the sell-off today, but a number of people have told me they’d just as soon not be long any LEH into the release of the company’s 10-Q, which is likely to come next week.
Hopefully someone is awake at the old Bank of England and not asleep at the switch as the U.S. regulators seem to be… . Or maybe Gordon Brown sees this as a valuable favor to an important ally.
This rumor has been floating out there since February…at least no one has come out and pledged that the deal will go through a la BofA and C’wide.
What would they be buying, anyway? Neuberger, I guess.
A Citi analyst last week estimated that Barclays needs to raise an additional £ 9B to sop up writedowns and strengthen its cap ratios. Still, this rumor is better than the one that says, `uh, and there are no buyers’.
The Barclays idea made no sense to me, but I suppose most Americans know no US bank is a credible buyer, so anyone big and foreign (save maybe UBS) sounds more plausible. Some of the big Japanese banks could pull it off, but I sincerely doubt they have the appetite. If any one were to step forward, it would be the result of serious behind the scenes arm-twisting.
Seems strange that the rating agencies have not downgraded Lb again – either short-term or long-term obligations or debt. Aren’t they supposed to be cleaning up their own act? Who is pulling their strings. It will be sickening to hear that it was Henry Paulson or Bernanke telling them to hold their fire a la Robert Rubin at Citigroup a few years ago.