Monday, June 09, 2008

Lehman Again- Today!

Back in April, here, shortly after Bear Stearns' demise, and, again, more recently, here, I have written about the remaining weakest investment bank, Lehman Brothers.

Currently, the smallest public major investment bank is having difficulties due to largish losses and a very public fight with short-seller David Einhorn.

Einhorn was on CNBC one morning last week, launching salvos against Richard Fuld's Lehman. Lehman has been studiously silent and declined to also appear on CNBC to answer Einhorn's allegations regarding the investment bank's asset quality and probable writedowns, plus their need for capital.

This morning, as I write this, the news is that Lehman is, in fact, seeking some $6B in commmon and preferred equity to remain in decent shape in terms of its balance sheet.

On CNBC discussing all of this is, shock of shocks, my old boss of bosses, George Ball, once CEO of Hutton, now a part of Lehman, and, later, PruBache Securities. I find it curious why the former CEO of what were essentially retail wire houses would be the appropriate guest host to discuss a primarily institutional investment bank's potential demise.

And, to make my point, Ball was mouthing silliness such as, maybe when Fuld is under fire for leverage, is the time he should shrink, stay independent, and lever up even more, to stay independent!

You can't make this stuff up!

Who exactly does Ball think will lend a levered up Lehman more money? And with less total asset cushion, as they sell off assets to manage risk?

More to the point, the talk on CNBC was about just who would want to buy Lehman at this point. Like me in the second linked post, they felt that Lehman's business model is now hopelessly and fatally flawed.

And, like me, they considered the really strong players- private equity and hedge funds. I didn't bother to write about this element of the Lehman endgame, but it's sensible to me.

Commercial banks don't really need a Lehman, since they all compete with it anyway, lend it money for liquidity, and, to a bank, are in fairly serious straits themselves just now.

The more likely result is for the Blackstones and their ilk to cherry pick the choice employees and, finally, bid for parts of Lehman's balance sheet, after forcing writedowns of the toxic stuff.

The real issue here is, again, public versus private ownership of these types of financial institutions. As I've written for nearly a year now, the really good financial services talent, except for Goldman, has left for the private world years ago.

If you think I'm wrong, consider Dillon Read. How many times has that boutique investment bank sold itself to a slow, fat public financial services company- Equitable comes to mind in one round- at a market top, only to buy itself back at the bottom? I have literally lost count.

But it begs the question of why anyone thinks there are really good opportunities for long-running, consistently superior total returns at any publicly-held financial service firms anymore, when their competition is off the radar screen, in the privately-held world.

I suspect that if today, this week, this month, aren't the end of Lehman as an independent publicly-held company, they probably mark the beginning or middle of the end of that era.

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