Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Tesla Robo Taxis are Coming THIS YEAR! - 16th June 24
Will NVDA Crash the Market? - 16th June 24
Inflation Is Dead! Or Is It? - 16th June 24
Investors Are Forever Blowing Bubbles - 16th June 24
Stock Market Investor Sentiment - 8th June 24
S&P 494 Stocks Then & Now - 8th June 24
As Stocks Bears Begin To Hibernate, It's Now Time To Worry About A Bear Market - 8th June 24
Gold, Silver and Crypto | How Charts Look Before US Dollar Meltdown - 8th June 24
Gold & Silver Get Slammed on Positive Economic Reports - 8th June 24
Gold Summer Doldrums - 8th June 24
S&P USD Correction - 7th June 24
Israel's Smoke and Mirrors Fake War on Gaza - 7th June 24
US Banking Crisis 2024 That No One Is Paying Attention To - 7th June 24
The Fed Leads and the Market Follows? It's a Big Fat MYTH - 7th June 24
How Much Gold Is There In the World? - 7th June 24
Is There a Financial Crisis Bubbling Under the Surface? - 7th June 24
Bitcoin Trend Forecast, Crypto's Exit Strategy - 31st May 24
Zimbabwe Officials Already Looking to Inflate New Gold-Backed Currency - 31st May 24
India Silver Imports Have Already Topped 2023 Total - 31st May 24
Gold Has Done Its Job – Isn’t That Enough? - 31st May 24
Gold Stocks Catching Up - 31st May 24
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Lehman, Treasury, Fed Lose Control of Banking System Game

Stock-Markets / Credit Crisis 2008 Aug 22, 2008 - 02:28 PM GMT

By: Mike_Shedlock

Stock-Markets Best Financial Markets Analysis ArticleAnalyst Richard Bove has stated Lehman CEO Richard Fuld has "lost control of the game." That is something I completely agree with as it should be obvious to all. Bove went on to say "If he doesn't do something this weekend, as of next week, the game is on." That makes absolutely no sense. Nor does Bove's price target of $20 per share.

Yes, Lehman has been shopping around for buyers, but buyers have been balking. I talked about Lehman talks collapsing and how poorly Lehman's preferreds trade in Ten Financial Entities On The Brink .


Lehman's Crown Jewel For Sale

Five days ago in a will he, won't he debate Financial News reported Lehman Brothers to keep Neuberger Berman unit .

Lehman Brothers is not looking to sell Neuberger Berman, an asset management business, according to analysts who met with Herbert McDade, the bank's new president and chief operating officer.

So much for that idea.

CNBC is reporting Lehman May Have Trouble Selling Neuberger Stake .
The same way sovereign funds balked over Lehman Brothers CEO Dick Fuld's terms to sell them a chunk of the firm, some private equity firms are balking over Fuld's terms to sell them a part of Lehman's investment management business, which includes the firm's crown jewel, the Neuberger & Berman asset management unit, sources have told CNBC.

As first reported by CNBC, Fuld, Lehman's long-time chief executive, is looking to sell a 70 percent stake in the investment management division and have an option to buy it back at a later date. As a carrot to the potential buyer is a warrant to purchase a 20 percent stake in Lehman that could be cashed in when the credit crisis abates and the firm's stock price recovers.

But potential buyers—which include nearly every major private equity firm—are starting to balk at Lehman's initial offer, according to Wall Street executives familiar with the matter.

Their problem is the price. Lehman is pricing the investment management division at around $10 billion, meaning a 70 percent stake would cost $7 billion. But the real cost will be much more than that, because asset management firms are only worth something if employees remain with them following such a transaction. Potential bidders believe that unless they set up a large retention pool—something in the neighborhood of $400 million to $500 million to keep employees at their jobs—the talent will walk, these people say.

Meanwhile, many of the firm retail brokers, who are part of the firm's investment management division, have been offered jobs by the likes of Morgan Stanley, plus bonuses to jump ship. Without a retention package, many might just leave Lehman, particularly as the firm's prospects grow dimmer.

Fuld Wants His Cake And Eat It Too

Neuberger Berman is clearly on the block but no one wants to pay what Fuld is asking.

Fuld is trying to sell something that is worth more to him than to any potential buyer, at a price that is clearly too high. He also wants an option to buy it back later. In other words he wants downside protection while capping someone else's gain. He is in no position to be asking for such terms and everyone knows it.

Korea Back In The Game

Bloomberg is reporting Lehman Rises After Korea Bank Comment on Investment .
Aug. 22 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, rose the most in two weeks in New York trading after Korea Development Bank said it's "considering" an investment in the company.

Lehman climbed $1.44 to $15.16 at 11:43 a.m. in New York Stock Exchange composite trading, after reaching $15.93. Shares of the New York-based firm dropped almost 80 percent this year before today, the worst-performer on the 11-company Amex Securities Broker/Dealer Index.

"KDB is considering all kinds of options, including Lehman Brothers," a KDB spokesman said today, declining to elaborate. A Reuters report earlier today cited a spokesman saying that the government-controlled bank is "open to" possibilities, including a purchase of Lehman.

"I would be very surprised by any deal that would lead to complete control," said Stuart Eizenstat, a partner at Covington & Burling LLP in Washington and former U.S. Deputy Secretary of the Treasury. "That would elicit a lot of questions and political blowback. I'm sure that's not going to happen."

Is This Good News?

The stock is reacting as if this is good news. Most likely it is not. If the deal happens, and that is a big if, it is likely to cause massive shareholder dilution at a price far lower than $15 per share. Didn't we just go through this at $28 a share?

One key point here that none of the articles above have addressed is that it's not just Lehman that has lost control. The Treasury and the Fed have lost control as well. If there are no US buyers, and I believe it would be a good thing if there are not, neither the Treasury or the Fed is in a position to bail out Lehman.

The Fed and Treasury may not like it one bit, but the flood of dollars those dollars foreigners are sitting on eventually have to come home. And they will come home by buying US assets. That is the price the US has to pay for the unsustainable US credit binge we have been on. So if a huge deal with Korea is announced, expect to see the Treasury begging Congress to approve it.

In June 2008, Bernanke Blamed Saving Glut For Housing Bubble . It is amazing that anyone, let alone a Fed Chairman, can possibly think that a crack-up consumption boom in the US, financed by cheap credit from foreigners can constitute a "savings glut". Bernake is clearly incompetent.

In the past few months, Singapore, Abu Dhabi, and now South Korea have or are considering "bailing out" US corporations. This is what's become of Bernanke's ridiculous "savings glut" theory.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in