Quick Lehman Update: Possible Buyers Going Over Books

Charles Gasparino of CNBC has reported that a ource at Goldman has told him the firm is not willing to buy Lehman. This is at odds with what a source, a former senior officer who has been accurate about past Lehman-related matters, told us earlier today via e-mail.

Ah, but are the two stories necessarily contradictory? Consider what he said:

A couple friends of mine from LEH trading desk called me this a.m. to say that mgmt has taken employees aside to let them know that the end should come in next 24-48 hours…

Apparently GS is willing buyer, but is buyer of last resort from LEH’s perspective…

Management may have tried to put the best possible spin on this situation, and may have suggested that Goldman was receptive. Given the history of leaked Lehman communiques, some of which appear to have gotten out by design, it is not implausible that management alluded to Goldman as a worst case scenario buyer even if Goldman is decidedly cool on the idea.

And the other aspects of this e-mail appear to be accurate. Bloomberg is now reporting that Lehman has asked other firms, unnamed at this juncture, to review its books:

Lehman Brothers Holdings Inc. entered into talks with potential buyers of the securities firm after Moody’s Investors Service said the company must find a “stronger financial partner” and the shares plummeted.

Bankers from other firms are reviewing Lehman’s books today, people with knowledge of the situation said, declining to identify the potential acquirers….

Without a “strategic arrangement” in the “near term,” Lehman’s credit-ratings may be downgraded, Moody’s said yesterday….

“While the number of potential acquirers at this point is very few, Moody’s action certainly raises the specter of takeout, potentially at a very low price,” said Merrill Lynch & Co. analyst Guy Moszkowski in a report today. He lowered his recommendation on the stock to “no opinion,” saying a potential “take-under” makes it hard to gauge a price target…

Print Friendly, PDF & Email


  1. ndk

    gaspo… yves… gaspo… yves… now which of the two would i believe most? it’s not the former.

    Yes, but that still leaves three to choose from.

  2. JP

    Ya know, the funny thing is that the headlines are ignoring Merrill.

    If you removed WaMu and LEH, Merrill would be THE story today. Down 15%? They are in deep trouble.

  3. S

    Fed treasury has to find a sly way to tak on some of the debt without making it a headline. LEH does have a bank sub. Could it draw and swap some collateral using that mechanism. leave it in placeand rioll it for a while. That was the dumnping ground for CFC. How can treasury wash out sokme of the real estate to make it attractive to the foregin buyer. why would anyomne buy without a first loss provision now. Lastly, can we finally put to rest that Fuld is somehow the guy to lead them out of this. he has led them into the ground.

  4. Yves Smith

    Anon of 1:44,

    You are right. Distress has now become relative.

    Anon of 1:20,

    Thanks for the vote of confidence, but there are scenarios under which both stories could be accurate. Reality is multi-faceted and in this case, the situation is dynamic.

    For instance: Lehman approaches GS. GS really is not interested, but instead of saying no, offers terms it is certain Lehman will reject (and in fact, are so one-sided, even given Lehman’s failing standing, that they would go ahead). It is almost always better to leave the door open, even a crack than to close it.

    Goldman, after all, may want to avoid a “no” in case it can pick up pieces it might want as things unravel. The asset management business does have value. There are advantages to getting the first call. Plus Goldman may want to have looked like a responsible citizen (“we did have an initial conversation but were clearly too far apart.”)

    In addition, it isn’t unheard of for two sides in a negotiations or deal feelers to interpret a statement made in two different lights.

  5. Anonymous

    I suspect everybody is being played here–the bloggers, the media, the rating agencies, . . . gotta create a litte room to manoever . . .

  6. Anonymous

    The shareholders are screwed anyway. Why not just file BK and then sell assets in an orderly manner.

    At least it would be a PR win for Bernanke and Paulson that they actually let a big fish die.

  7. Anonymous

    The players will change but the game will remain the same.

    Since the financials are all interconnected due to leverage vehicles the best course is to delay a chain reaction meltdown (be absorb into the collective 1 by 1) while waiting for real estate to turn around.

    What’s that?…..Not going to bottom until 2010? (best case) Doesn’t matter, foreign holders of our debt were backstopped temporarily while the rest of US can go pound sand as we watch the meltdown in slow motion during a depression era.

  8. viking

    one thing we know: Lehman’s books are as cooked as Fannie and Freddie

    another we know because of this: nobody wants to take this on without a government backstop–too risky when Lehman may be a giant net liability

    one thing I think (in line with Matt Dubuque): the Fed is done bailing.

    LEHMAN WILL NOT BE BAILED, IMHO. The market will realize this soon. They have protected the mortgage market, which apparently was close to complete collapse, so much so that Paulson didn’t not bother to get an accurate sense of how much it might cost, so urgent was the situation. He said this, point blank, on TV.

    Also in reports now that the banks want a BSC/JPM set up but that the Fed has not offered to facilitate.


    No more bailouts. Let that sink in. Then go buy your puts.

  9. Max

    It’s ironic that the LEH “asset management” is worth something – if they were worth something, how did they allow such a disaster right at their home?

    If someone from Lehman “asset management” offered me to bag my groceries I would laugh in his face and say “no thanx”.

  10. Shawn H

    Washington Post:

    “The Treasury Department and the Federal Reserve are engineering a sale of Lehman Brothers through a consortium of private firms. The details are not finalized, but sources familiar with the matter say the purchase is expected to be completed and announced this weekend before Asian markets open on Monday morning.”

  11. Anonymous

    Before asian markets open on monday. Before asian markets open on monday. How many times must we hear this. Their sleep must not be interrupted???

  12. doc holiday

    The market is acting positive about the destruction of Bear, Fannie, Lehamn, WaMU, Merrill, etc, and subprime writedowns, etc, — this this is a VERY good sign that the bottom is ALMOST in, when there is nothing left besides a market for wild speculation! BUY now, place your bets on the next failure before you get priced out … retards!

  13. Matt Dubuque

    It does look like my statement in this forum from several days ago that the Fed was actively considering NOT bailing out Lehman was spot on.

    I’m not trying to boast, but I don’t know of another person at the time who agreed with me. Any evidence to the contrary is most welcome. Perhaps I’m in tune with Federal Reserve policy just a wee bit more than others?

    The financial press has been FLOODED with stories over the last 9 months about the evildoer shorts who are causing all this market turmoil, assisted by the planting of false and bearish stories in the media.

    What really appears to me to be the case with Lehman is that there have been a very long string of stories about purported “buyers” and “interest” that seem entirely consistent with trying to pump up the stock on the long side. Is it possible that all this hype is coming from inside Lehman?

    I don’t have any positions in Lehman one way or the other, but this is my clear sense of the vast majority of these stories.

    Matt Dubuque

  14. viking


    Your post of a few days convinced me. I was second on that bandwagon. I think the Fed is going to draw the line on Leh.


  15. London Derivatives Trader

    With LEH trading below $3.60 in the after-market, this is an incredible set-up for the greatest trade ever.
    LEH is a great franchise and Wall Street will not let it fail for obvious systemic reasons, nor will it let it go the way of BSC. If it did, when will this run on the bank end? Who will the shorts crush next? MER? MS? GS?!?
    I am convinced that LEH will be snapped up by a large financial institutions for $20-25/share by Sunday. When this deal is announced LEH shares will run up to $35 in a massive short covering wave. This will send a clear signal that the financial sector is no longer fair game.

  16. JP

    Who will the shorts crush next? MER? MS? GS?!?

    MER. No question.
    But it’s not the shorts that crushed it. They’ve be self-crushing like much of wall street.

  17. Anonymous

    London Deriv:
    Banks losing $4bn that can’t raise $5bn from Korean bankers are NOT going to sell for $25/share. The KDB looked at the books, realized it couldn’t mark the toxic level 3 garbage, and looked the door on any deal. The days of over-paying for brand are dead and gone, and every one knows that Fuld is desparate–no premium will be paid (unless BofA is the sucker mark, but even they won’t come out of single digits after the CFC debacle).

    Good luck playing this one long.

  18. Matt Dubuque


    Thanks. There is a countervailing argument to all this. I’ll try to dredge up a link to an internal IMF paper that said the insistence of the IMF that certain Thai banks fail actually EXACERBATED the Asian crisis because it led to a general panic.

    It was a pretty profound self-criticism by that institution.

    There is a downside to “lancing the boil” as it were.

    But the Fed didn’t run up the deficits and they are not really interested in taking on toxic waste that the SEC allowed to happen, through their lax regulation of the investment banks.

    They have their own balance sheet to protect. They are partly privately owned….

    Matt Dubuque

  19. Anonymous

    Krispy Kream had more future value before they went under, but LEH is being floated along by counterparties and various hedged entities that still hope to (also) survive. This is toast, move along and let the blood be washed into the gutter!

  20. Dean

    Let me repeat “no name calling”; I was watching with one eye the Palin interview and I was flexing and streching a bit.

  21. Anonymous

    The main problem with Lehman is the concern for a credit rating downgrade which will lead to a liquidity issue in having to post more cash for derivative positions. It doesn’t seem to be exactly the same as Bear Stearns. In Bear’s scenario there was client cash running out the door and assets that were imploding on a daily basis. I would think that a deal with a large commercial bank with a AA- rating or better would establish confidence in Lehman. Then they could jettison the mortgage assets even at a discount to where they are held on the books and you would still have a good company to work with bought for less than book value (if the deal is done significantly less than $27.29 bvps).

  22. Dean


    It appears government still involved with LEH bailout:

    SAN FRANCISCO (MarketWatch) — Lehman Brothers Holdings Inc. (LEH:Lehman Brothers Holdings Inc
    News, chart, profile, more
    Last: 4.22-3.03-41.79%

    4:01pm 09/11/2008

    Delayed quote dataAdd to portfolio
    Create alertInsider
    Sponsored by:
    LEH 4.22, -3.03, -41.8%) is actively shopping itself to potential buyers including Bank of America Corp. (BAC:bank of america corporation com
    News, chart, profile, more
    Last: 33.06+0.68+2.10%

    4:03pm 09/11/2008

    Delayed quote dataAdd to portfolio
    Create alertInsider
    Sponsored by:
    BAC 33.06, +0.68, +2.1%) , The Wall Street Journal reported late Thursday on its Web site, citing people familiar with the matter. Shares of Lehman dropped more than 40% on the day as it struggles to shore up confidence with investors and clients. Potential buyers are looking to the U.S. government to help backstop future losses at Lehman, according to the Journal.

  23. dd

    The karma continues:
    Argentina's Fernandez to Lehman: Worry About Yourself
    Argentine President Cristina Fernandez de Kirchner told Lehman Brothers Holdings Inc. to worry about its own finances, three weeks after the firm said the South American country could default within two years.

    “Today the news in the papers, in all the papers, is the collapse of another bank far away in the United States — that bank that predicted the collapse of Argentina,'' Fernandez, 55, said during a speech last night. “They should spend more time looking at their own accounts rather than looking at other countries.''


  24. dolores

    The SEC did not allow as we both know the Fed has responsibility for the holding company structures that the SEC fought tooth and nail against from way back in the 1980s. This is the Feds baby:.

    The Fed is responsible for holding companies and the SEC has no authority to demand compliance and is stuck with b/d books. Know that..had the first case…and man the SEC was toasted. Couldn’t get Dean Witter’s Sears holding co books or Drexel’s holding company’s books.

  25. dd

    Actually, a clarification, way back in the 1980’s the meme was no one was entitled to holding books..but technically the Fed of course, uber-alles.

  26. Anonymous

    Just need a further run on the bank and cessation of any other banks wanting to do business as risk rises.
    Then they will be assimilated into the collective. The leveraged vehicles can not be allowed to implode.

  27. dd

    And here I would like to defend the SEC loyal troops who believed in investor protections against the Fed/Greenspan de-regulatory nightmare. A regulated banking structure will fall quickly against the force of unregulated entities and securities free-riding on the regulated structure. The SEC managed to shut down the first attack albeit much belatedly due to the Feds insistent de-regulatory stance. Even the 1987 meltdown did not convince the de-regulatory faction of its folly. Greenspan won (after bailing out the very same bear with continental cash) that now sits on its own Maiden books and the investor protection champions lost. Now of course the SEC is safely in coxed. Very sad.

Comments are closed.