As a deal for Lehman Brothers can be expected to be announced this weekend, the speculation on what that deal would look like is beginning to gain momentum. After reviewing the morning’s news feeds and placing a couple of phone calls, I am increasingly convinced that a Lehman deal is possible, even attractive, without Federal monies propping up the deal.
First, who would the buyers be? Well, I have maintained since My September 7 Article that there would be a friendly buyout/takeover bid made by publicly traded company and backed by private equity capital based on conversations with a confidential source.
My September 11 Articlearticulated some of the reasons I believe outfits like Lehman will survive the credit crisis – with or without Federal assistance – and why I believe those more similar to WaMu will be sacrificed.
Well, after climbing way out on the limb, I was pleased to awaken to a bevy of analysis that further convinces me that I am on the right track.
Friday 9-12-08
2:15pm PST An analyst from RBC Bank stated on Faux Biz that Lehman needs to close a deal on Sunday, or file for BK protection on Monday.
12:30pm PST Liz Clayman of Faux Biz is saying her inside Lehman sources say any deal is out of Fulds hands now – any deal is now solely at the discretion of Treasury Secretary Henry Paulson – else Monday would have to see a structured BK for Lehman.
Earlier this morning: Analyst Dick Bove said this morning in an interview with Faux Biz that if you look at Lehman’s balance sheet minus all recent writedowns and mark to market activity from Q3, they actually show about $3.5BB revenue with nearly $400MM in pretax profits.
Bove says that means a deal could stand on it’s own without any Federal assistance, and I agree.
Bove says that if the buyer is a large banking institution – like Bank of America – the troubled Commercial Mortgage Portfolio could be put in “maturity” accounting status and not have to marked to market for a loss.
It really looks like a deal will be announce Sunday, and no Federal money involved.
I do suspect that there will be some kind of implied safety-net offered to the buyer by the Fed in a non-official, backroom on-a-handshake kind of promise. Hence the Fed’s heavy involvement in “brokering” this deal.
Trust me, the reassurances of future Federal backing is there in the deal, but no money will be publicly pledged.
On Washington Mutual, Bove said he believes WaMu does have some capital left to hold them over – why he believes this he did not say – and thinks the Fed will probably have to back a deal to save WaMu.
Bove believes the Feds will pressure Wells Fargo to absorb WaMu, and other rumors from the American Banker of a JP Morgan deal are still floating around.
I say the Feds will let WaMu fail in the end. Perhaps they can be convinced to provide some support, but I think the few dollars they have to keep the markets stable are earmarked for bigger problems down the road.
bove also is a brilliant guy who has had buy recomendations on several financials only to see them fall another 40-60%. Last week he stated Lehman was a buy with a price target of $20/share. Folks please wake up and understand that leverage is NOT your freind in this environment. WFC is sitting on $84 billion of home equity paper with a loss provision of only $7 billion or so as of this day. They want to sell $12 billion of the worst, which is worth at BEST 5 cents on the dollar (a loss of 10+ billion, leaving them with $72 billion of loans that are in a junior position, currently worth roughly 50%??). They recently reclassified their non-performing assets from 120 days to 180 days, WHY???? As the great Senator from NY said (Schumer) yesterday if you take a non performing asset and give it some time it will become a performing asset….WRONG!!!! The banking sector is in terrible shape. Wells Fargo will in my estimation wipe out 3 years of earnings with their losses on their home equity portfolio, but they will not discuss it. They will take a $25-30 billion loss on that loan portfolio alone. Wake up investors, what the govt is doing is sticking you with the losses and letting the theives walk away.
I personally agree with you, but everyone gives me a bad time if I am too doom-and-gloom.
You are talking in terms of objective reality – a place I like to visit at least twice a week, and even more if I can find the patience (or have the stomach for it).
What I was doing the in the article was taking the blindly optimistic ADHD “we can wish our out of this mess with optimism and whole lot of taxpayer money” stick your head in the sand view that is promulgated daily in the press.
You know – the market swings up with triple digit gains one day and the press cries “Bottom!” (Cramer too). Triple digit losses another day and they wonder if the “housing crisis is deepening…”
Too short cited, and extremely non-critical considering the evidence is out there.
Lehman is nothing compared to the carnage we will see next year with resets and defaults that will make this year look like a disastrous dress-rehearsal.
At least it sounds like the Fed is putting some muscle to the more stable financials to come to the aid of Lehman.
They are telling them to stop throwing up your hands and running to momma looking for special deals like JPM got with Bear Stearns. You made money off this mess and now you have to give some back by helping-a-brother-out.
Excuse yourself Gamerboy – this forum is probably way over your head. There are no PS3 or Warcraft games for you here – just relevant analysis and commentary on finance and freedom.
The number of tags is a measure of my effort to reach the people who want this information, not little Gamerboys.
Plus, I have tried to erase a dozen or more of them on several occasions, but Wordpiss is so inferior in so many ways, they keep showing up anyway!
I do appreciate that you were able to pry yourself away from your fantasies long enough to notice there is an entire world that exists outside of your game system.
Next time try actually reading the article – you might learn something.
Your Mortgage or Your Life... 
bove also is a brilliant guy who has had buy recomendations on several financials only to see them fall another 40-60%. Last week he stated Lehman was a buy with a price target of $20/share. Folks please wake up and understand that leverage is NOT your freind in this environment. WFC is sitting on $84 billion of home equity paper with a loss provision of only $7 billion or so as of this day. They want to sell $12 billion of the worst, which is worth at BEST 5 cents on the dollar (a loss of 10+ billion, leaving them with $72 billion of loans that are in a junior position, currently worth roughly 50%??). They recently reclassified their non-performing assets from 120 days to 180 days, WHY???? As the great Senator from NY said (Schumer) yesterday if you take a non performing asset and give it some time it will become a performing asset….WRONG!!!! The banking sector is in terrible shape. Wells Fargo will in my estimation wipe out 3 years of earnings with their losses on their home equity portfolio, but they will not discuss it. They will take a $25-30 billion loss on that loan portfolio alone. Wake up investors, what the govt is doing is sticking you with the losses and letting the theives walk away.
I personally agree with you, but everyone gives me a bad time if I am too doom-and-gloom.
You are talking in terms of objective reality – a place I like to visit at least twice a week, and even more if I can find the patience (or have the stomach for it).
What I was doing the in the article was taking the blindly optimistic ADHD “we can wish our out of this mess with optimism and whole lot of taxpayer money” stick your head in the sand view that is promulgated daily in the press.
You know – the market swings up with triple digit gains one day and the press cries “Bottom!” (Cramer too). Triple digit losses another day and they wonder if the “housing crisis is deepening…”
Too short cited, and extremely non-critical considering the evidence is out there.
Lehman is nothing compared to the carnage we will see next year with resets and defaults that will make this year look like a disastrous dress-rehearsal.
At least it sounds like the Fed is putting some muscle to the more stable financials to come to the aid of Lehman.
They are telling them to stop throwing up your hands and running to momma looking for special deals like JPM got with Bear Stearns. You made money off this mess and now you have to give some back by helping-a-brother-out.
At least that’s what I hope is happening.
Think you got enough tags on your story there?
Excuse yourself Gamerboy – this forum is probably way over your head. There are no PS3 or Warcraft games for you here – just relevant analysis and commentary on finance and freedom.
The number of tags is a measure of my effort to reach the people who want this information, not little Gamerboys.
Plus, I have tried to erase a dozen or more of them on several occasions, but Wordpiss is so inferior in so many ways, they keep showing up anyway!
I do appreciate that you were able to pry yourself away from your fantasies long enough to notice there is an entire world that exists outside of your game system.
Next time try actually reading the article – you might learn something.