Lehman Portfolio Firesale?

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 TimesOnLine reported today that troubled giant Lehman is looking to unload it’s languishing $40 billion portfolio. Will it be at ‘Firesale’ prices?

“Lehman Brothers, the Wall Street investment bank, is understood to be in talks to sell its entire $40 billion (£21.5 billion) real estate portfolio in a move to stem losses incurred during one of the worst property slumps since the Great Depression. “

“The bank – whose stock has fallen 69 per cent since the credit crisis erupted just over a year ago – is believed to be prepared to take a $5 billion hit on the sale of the assets and securities.”

“Lehman is believed to have begun sale negotiations with firms such as Blackstone, the private equity group, and BlackRock, the fund manager. “


4 Responses to Lehman Portfolio Firesale?

  1. Sorry, had a glitch and burned the thread. I will attemp to locat and repost.

    I think it was CV who commented that Lehman and Bear Stearns did not manage anthing well, and that Merrill Lynch would joim them soon for the same reasons.

    CV – One could make a good argument that these financial companies did manage things really well. Just not necessarily the right things. What they did manage really well, just off the top of my head:
    – Record originations, growth, profits
    – Record home ownership levels
    – Development of progressive mortgage products that expanded access and markets
    – Record levels of employment in the industry
    – Explosive growth in wholesale and correspondent channels
    – Record growth in tangential industries like real estate, appraisals, inspections, home improvement, contractors, roads and infrastructure expansion
    – New investment vehicles that created a more dynamic system that ultimately freed more funds for lending, further increasing access
    – Never before seen access to home equity with diverse and flexible terms
    -10 day turn times on submitted files
    – Online broker pipelines with current guidelines, online customer prequal/preapproval, fax and email docs, streamlined originations, the only sit down is at signing – nice for everyone
    – Advanced pricing and analytics on a per market basis that resulted in even more competitive rates for consumers to choose from
    – etc., etc.

    It can be argued that is took a tremendous level of skill in the management department. I’ll even go as far as to say they managed 95% of their business activities with prowess.

    The problem is that the 5% they dropped the ball on was the most important 5% – the part that would have kept them and us out of trouble: Risk Abatement. No downs, Neg Am s, interest only, sub prime credit, complicated products from the consumer’s standpoint, lack of oversight and quality control, profits over good business practices and the like.

    They messed up royally on these. Beyond any rational belief. Imagine if they had sorted it all out better :

    -100% LTV might be appropriate for some people who have good credit, income and assets to document
    -Pay Option Arms are really good for people who are seasonal – like contractors – they can pay the 15 year amortized payment when contracts are rolling, and opt for the I/O or Neg Am payment in the off season
    -Stated Income loans are perfect for the self employed and also for those who’s income varies seasonally
    -Alternative or damaged credit is OK for borrowers with extenuating circumstances – medical, divorce
    – Interest only payments are perfect for construction programs and bridge loans – when the borrower has to carry two notes for a fixed period, like while a house is built or while they move across country.
    -Adjustable Rate Mortgages are great for first time home buyers who can qualify at a lower rate than on fixed products (typically) – like younger buyers – and then Refi to a fixed in a few years when their income and equity have grown.
    – Piggyback Second mortgages are excellent for High Cost Markets, letting borrowers finance into conforming loans that are GSE purchasable, keeping lender portfolios from filling up and increasing access to money for everyone

    The problems started when someone thought it was a good idea to let borrowers choose anything they wanted from this smorgasbord, and not appreciating what a deadly concoction they make when mixed carelessly.

    – Joe got a 100% LTV loan with a 1% 5 year qualifying rate POA that has a Neg Am Recast threshold of 125% LTV. Joe had a FICO of 580 with a couple of 60 Day Late payments in the last two years, and a BK that Discharged two and a half years ago. He was not asked to document his income or his assets, and is not required to sign a T4506. He was not required to have any Capital Reserves, PITI or Seasoned Funds. He was given the responsibility to determine for himself how the four different possible amortizations outcomes based on the four different payments he could choose from would ultimately effect his financial position. He was told he could Refi to a Fixed Rate at any time, not knowing they could just change the rules at any time. He was told it was foolish to lock up his capital in equity with a 20% Down Payment, because he could invest that money in the stock market from his computer and double it, or spend it home improvement and double it. Or take a vacation to Vegas and double it. Or take the amount of money they are used to spending every month and double it.

    Now it is no wonder Joe is calling you all freaked out. He has applied for Refi’s at 20 lenders and brokers, filled out multiple apps, faxed and emailed all the docs, and had his credit pulled dozens of times (they only give you two weeks of pulls before you get dinged, so do all your shopping and apps at once kids). Now he has a 510 FICO, and is upside down with in the loan with %125 LTV and four months late payments because he did not know what a recast meant – he thought he had that Teaser Rate locked for four more years. He thought he could keep paying the Neg Am until he could figure out exactly what he got himself into, and how to get out of it.

    But all of a sudden, he did have 4 choices of payment any more. Or a low interest rate. His payment more than tripled overnight, and the lender that talked him into the loan either went out of business or rewrote the underwriting criteria so prohibitively they can not qualify.

  2. CV had said: They like Bear Stearns can’t manage anything very well so this makes sense and financially troubled Merrill should be right behind.


    Tsunami had said: So sounds like Black rock is “averaging down again”
    give me the old Maid…
    gee didn’t they catch the old maid last November? or was that in August when Paulson said, I have a plan”
    Yeh that’s why its called averaging down!
    Blackstone not Black rock
    right Tier III – Aaa
    every price discovery…creates a “valutation destruction”.
    Funny how it’s like in the stock market, 1 company reports good earnings and everyone goes up…..but in reverse


    JimT said: Willing to take a $5 billion dollar hit on $40 billion? That’s laughable! They are still pricing to fantasy? Try more like a $32 billion hit or more and that’s if they finance 75% of the purchase price for the buyer to buy it, with payments on that loan only guaranteed to be paid from the income realized off the portfolio purchased. Good Luck!


  3. Rockefellor says:


    Give me your Gold, suckers.

  4. Rockefeller? Na.

    Jim Cramer, I know that it is really you lurking here in Lehman.

    You say that same thing on behalf of Rockefeller every day though, don’t you?

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