Rumors about Lehman are swirling

Don't you listen, everything is great. No problem here, keep moving along.

Trouble at Lehman could be a big catalyst to the downside. It is widely believed (or hoped) that Bear was a somewhat isolated incident. Another big bank in trouble will force everyone to consider the possibility that there is a systemic, long-term problem on Wall Street. I've been in the rental market for 6 months now and it feels like rents have started to fall quickly in the past month. Just looked at a unit listed as "in contract" for $1.4m (10k monthly cost) for rent at $6000 (and was told in no uncertain terms that there is considerable price flexiblity).

The immediate pressure on Lehman stock is probably more related to likely dilution of shareholder value. Still, it's impossible to rule out a Bear-style "run on the bank" if confidence continues to erode.

Uh-oh. Looks like maybe the bottom might be falling out as we type.

Let's be clear. By "stock down" the OP refers ostensibly to Lehman--not all stock. The market has not dropped 9% today.

Real estate market notwithstanding, LEH is in a much better position than Bear was.

First, LEH can borrow from the Fed's discount window, which is access to liquidity that Bear never had. Secondly, the CEO's of Merrill (John Thain) and Morgan Stanley (John Mack) have expressed financial support for LEH against speculators looking to take down LEH. (Most Wall Street banks disliked Bear and were all too glad to see it go away.) Third, Dick Fuld (LEH's CEO) has managed similar crises before, most notably after Long Term Capital blew up. Since then, their strategy was to always to have a solid balance sheet to survive just these environments. Compare that to Bear's Jimmy Cayne who couldn't have been bothered from his bridge tournament as his entire company was going down the toilet.

Now, I have no knowledge of what exactly is on their books or what their current capital structure is. But...I know that LEH's situation is very, very different than Bear's was.

We don't know what Lehman holds in its Tier 3 account just like we didn't know about Bear. Lehman certainly won't have a short-term liquidity crisis because of the FED's Facility window, but the toxic securities still will be on their balance sheet.

their books are a mess. And if a crisis of confidence hits, the fed's window will only delay the insolvency

12%

http://www.crainsnewyork.com/apps/pbcs.dll/article?AID=/20080603/FREE/185106773/1048

last report I saw LEH has:

$200 Bln in Level 2
$42.5 Bln in Level 3

Citigroup's books are way worse.

933 Bln in Level 2
133 Bln in Level 3

They are just not ready to mark to market assets yet, and instead are shifting them to level 3.

Dear Fed,

I.O.U. $30,000,000,000

Richard Fuld

I wish I could keep on borrowing when I go to Vegas, if you had an endless bankroll you might actually beat the house. How much is this going to cost the Tax Payers? No one seems to be able to answer this question.

dco: It's probably much cheaper - and certainly much safer - to inject liquidity than it would be to let a major I-Bank fail. The whole situation stinks, but don't blame Bernanke. He inherited the mess.

That's the problem, no one knows who to blame. The whole thing was just a pyramid scheme. Corporations made billions and people peddling the crap made millions. Now the tax payers get stuck with the bill. Where was the oversight? There is no doubt that influential people knowingly committed crimes. When this is behind us we will reflect and be amazed that no one went to jail.

dco, there's nobody to blame. This is just people being people. This type of behavior (boom/bust) has been documented at least as far back to Sumerian grain markets in 5000 B.C.

why do we keep talking about wall street?

don't you know that job losses there have absolutely nothing to do with manhattan real estate?

don't you know that manhattan real estate can only go up?

haven't you heard that if you don't buy now you will be priced out forever?

don't you see all these smart foreigners buying as i type?

don't listen to these people who are just trying to scare you- they are just bitter renters who didn't buy when they had a chance and now, since manhattan real estate only goes up, they are priced out.

don't turn into one of these bitter renters and buy buy now!! don't rent!!

renting is a waste of your money. even if it costs up to 2x rent to own, you will still make a killing!!

and, most importantly, if you see data and numbers thrown at you by these sorry bitter renters about how prices are going to go down, just ignore them. data, statistics and studies are all useless- they are designed to just confuse you. they don't mean anything. they serve no other purpose than to confuse and scare you.

80sMan- There is always someone to blame. How about we start with Bear's CEO who stated that there were no problems the week before the bank collapsed and cost millions of share holders billions of dollars by being lied to. And lets not forget the 7,000+ that are losing their jobs and will never recover everything they worked their whole lives for. Don't worry it was just a little lie. Some say lie I say crime.

dco, is irrational exuberance a crime? I read an interesting study by an economist of the 1849 California gold rush. Turns out the average prospector broke even though there were plenty of stories about "striking it rich, nuggets as big as a man's fist". The only people to make money were the land owners and Levi Strauss along with the other suppliers. The moral of the story is that when everyone wants something, don't buy it. Sell it. Or sell them what they think they need to get rich (Steeteasy!). Remember Donald Trump's $500 seminars back in 2004? Sold out. Now people wonder what happened. Let's see. Oh, yeah. Greed: I want to have more money than you. Fear: I'm afraid that you have more money than me. Who's to blame? You or me? Anyone who saw what was going on got on the other side of this market pretty quickly.

Some say lie I say crime.

dco, the "Wall Streeters" that are bandied about here so casually don't hold big mortgages. They know better. They can use excel and calculate compounded interest and NBAI (next best alternative investment). Everyone else who listened to a broker at 6% and listened to their neighbor (people consistently lie about money and sex). Oh, well. La-di-da. La-di-da.

dco, some crimes are legal. Some crimes are illegal. Our system of government is reactive not proactive. That's the "liberty" that drives America. Ever hear of "The Money Panic of 1873"? Who knew investing in railroads during the expansion of America could be so much trouble...

Or read the book "where are the customers' yachts?"

80sMan- Thanks for the civic lesson. I guess your not actually getting my point. "Some crimes are legal. Some crimes are illegal" what does that mean? What crime is legal? I'm sorry I'm not just one of those people that say "La-di-da. La-di-da".

swirl swirl swirl

The big boys have expressed their warm and fuzzies for Lehman, but how do they feel about WaMu, proud possessor of one of the most toxic books of alt-a business to be found?

aboutready- It's a mess and will be for sometime with the worst still to come. Credit Cards, Helocs and Energy prices. The consumer is just about dead. Just wait until people get the heating bill. Single family homes and apartments that use oil are going to get crushed. CC's in buildings in this city and else where are going to increase 20-30% (A large majority). Cash is your best play for the next 12-18 months.

Whoever was minding the store allowed this ecomony to become 66% consumer based so with the rising prices on seemingly everything, the future certainly looks interesting, no?

it was just a week ago that LEH CFO said they did not need to raise capital because they had 42Bln in cushion...why does anyone believe anything they are told these days in the financials.

It's funny isn't. Bear said the same. LEH would be out if not for the discount window. Actually I still thinks it's a lot more trouble then they are letting on. I wouldn't want to be holding when the music stops.

"it was just a week ago that LEH CFO said they did not need to raise capital because they had 42Bln in cushion...why does anyone believe anything they are told these days in the financials."

LEH's CFO was horrible in that interview, she lied like a rug. Whenever a corporate executive blames shortsellers for a their stocks poor performance (and not their own poor performance) you know they are totally full of crap and have nobody left to blame.

I am happy to be shorting this. This will face the same destiny as BSC did. My prediction is that someone will buy Lehman in the near future for a bargain price ($5-$10?).

manhattanguy, very good chance Lehman will be bought. LEH ha s clause that in the event of a hostile takeover all restricted stock go unrestricted and voting. This was a form of "shark repellent" in the past but after diluting shareholders 28% I don't think this is going to be that big of a deal. 8 years of stock gains wiped out. Ouch.

"I am happy to be shorting this. This will face the same destiny as BSC did. My prediction is that someone will buy Lehman in the near future for a bargain price ($5-$10?)."

while I agree LEH is in big trouble, it will NOT have the same fate at BSC.
- LEH has the ability to borrow from the Fed's discount window, BSC did not.
- BSC was the most hated bank on Wall Street ever since Jimmy Cayne did not step in to help (along w/ the other banks) when Longterm Capital blew up and they needed the street to bail them out...

They are on very thin ice with or without the FED.

the counterparty risk is to great for the other banks to let them fail....but yes, thin ice indeed, there certainly are no guarantees out there...

Cpalms - refer to what urbandigs said earlier. I wouldn't believe anything these guys say. They lost the credibility. If Dow and S&P falls below the March levels, all bets are off. Markets are hanging by a thread. I think Lehman's days as an independent firm are numbered.

"the counterparty risk is to great for the other banks to let them fail....but yes, thin ice indeed, there certainly are no guarantees out there..."

Looks like other investment banks are downgrading this stock left and right :) HSBC cut its rating today.

BTW, CFO Callan is demoted. This is great.

In 2003, I think, we got in to the war in Iraq. So I'm sure on this board you had guys like dlafronz, dco, mbz, and manhattanguy posting about all the negatives on that war, naturally. And what happened to real estate in Nyc?

elaintimon- Everything is great, nothing to see here, please keep moving. Are you trying to say that you don't agree with the state of a slowing NYC real estate market?

I'm not sure it has anything to do with Lehman Brothers any more than the bad traffic on the George Washington today.

elaintimon - i was responding to Cpalms's previous comment regarding Lehman. I suggest reading the complete thread before you say something stupid.

dco - Can't wait for the West Village to be blood red so I can snatch up a townhouse for 250K...

dco — there's no meaningful slowdown in Manhattan. Whatever is on the market, sells, with the usual fluctuation in prices. No matter how loudly you and your fellow badwishers shriek, things are back to normal. Relax and accept the fact: byers buy, sellers sell, and you've missed the train again.

Something stupid like "all bets are off"?

Some on this board watch lehman's thing with "that should do it!" hope (perverted, I think) that something really awful happens and then, finally, they'll be able to buy a penthouse with a terrace for $150K while desperate sellers kill themselves. Ain't going to happen.

Some of the permabulls on this board (you know who I am talking about) need a reality check here

Ok

The amount of inventory that is being held back by New Developments alone will increase inventory by thousands this time next year, just in time for the wallstreet crowd to get their bonuses or not.

in 2003, the cost to buy = cost to rent. today the cost to buy = 2X cost to rent.
the last 10 years are not representative of the next 10 years.

"Some of the permabulls on this board (you know who I am talking about) need a reality check here"

Some of the permabullshitters on this board (you know who I am talking about) need a reality check here

Lehman will be bought within by the end of the month. Just a hunch.

eric_cartman reminds me of an 95 year old guy who's looking to invest in the next hot penny stock.

How many jobs will this cost?

Barclay is looking into buying it at $10

HSBC is a possibility