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From Bloomberg:

 Lehman Brothers Holdings Inc. is trying to sell its fund-management unit to cover further mortgage- related writedowns. If it does, what's left won't be worth much, based on how investors value the firm.

Lehman's market capitalization of $11.2 billion is almost equal to the value of its asset-management arm, which includes Neuberger Berman Inc. That leaves its main business of trading stocks and bonds as having little worth. The numbers are similar for Merrill Lynch & Co.: Take out its retail-brokerage and asset- management businesses, and the investors' valuation of the rest of the third-biggest U.S. securities firm is zero.

After being the most profitable business on Wall Street, generating more than $65 billion in pretax profits for the four largest U.S. securities firms between 2002 and 2006, trading has become a black hole. It still accounts for about half of the revenue at the Wall Street firms. Yet Lehman Chief Executive Officer Richard Fuld and Merrill CEO John Thain have been unable to convince shareholders to attach a value to the businesses.

I went through this in detail when analyzing and valuing both Morgan Stanley and Goldman Sachs, as well detailing the risks in these companies' trading practices and off balance sheet exposures. From a risk adjusted return perspective, particularly when looking at near to medium term future prospects, they just aren't worth that much. Unfortunately, the media still believes that Goldman has odorless dung:


Goldman Sachs, which has managed so far to avoid the evaporation of earnings that its peers have encountered, was the exception: Its adjusted trading revenue was little changed.

Goldman's writedowns, $3.8 billion so far, have been dwarfed by those of its three smaller rivals. Strip away Goldman's asset- management business, worth about $25 billion, and the rest of the firm, including trading, is valued at $45 billion.

 I urge all to peruse my take on Goldman: Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street and Reggie Middleton on Risk, Reward and Reputations on the Street: the Goldman Sachs Forensic Analysis


 More from the Bloomberg article:

Lehman's asset-management unit is worth about $8 billion, based on the amount of cash it manages for clients, compared with publicly traded rivals such as New York-based BlackRock Inc. or Federated Investors Inc. of Pittsburgh. That leaves less than $3.5 billion for the rest of the fourth-largest U.S. securities firm. 

Merrill's retail-brokerage division is worth about $29 billion, based on earnings multiples of comparable publicly traded brokers, while its 49 percent stake in BlackRock is worth $12 billion. That equals Merrill's market value. Morgan Stanley's retail brokerage could garner $19 billion and its asset-management business $17 billion, according to the same calculations, leaving about $10 billion for the rest of the second-biggest securities firm, including its trading business. Officials at the three New York-based firms declined to comment.

The biggest reason for the depressed valuations is concern about writedowns on the companies' mortgage holdings. Merrill, Lehman and Morgan Stanley have written down $74 billion of their holdings tied to home loans, commercial real estate and leveraged finance for companies during the past four quarters, data compiled by Bloomberg show...

Between 2002 and 2006, investment banking made up less than 20 percent of average total revenue for the four largest securities firms. Trading accounted for as much as 70 percent during some quarters before declining to about 50 percent last quarter. Geisst said it may take as long as 10 years before trading revenue numbers catch up to peak levels in 2006 and 2007. 

See my take via the following:

 Banks, Brokers, & Bullsh1+ part 1

Wednesday, 19 December 2007 | Reggie Middleton

A thorough forensic analysis of Goldman Sachs, Bear Stearns, Citigroup, Morgan Stanley, and Lehman Brothers has uncovered...  Last week, Morgan Stanley called Citibank the “short play of...

The Riskiest Bank on the Street
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)

Key highlights of my research on the "Riskiest Investment Bank on the Street": The Riskiest Bank on Wall Street – Morgan Stanley has US$74 billion of Level 3 assets, over 200% of its eq
Monday, 11 February 2008
A closer look at the exposure of the other brokers
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...- Who has the most of their assets tied up in illiquid Level 3 as a proportion to tangible equity? You guessed it, The Riskiest Bank on the Street. Now, they do have a decent amount of liquidity the ...
Sunday, 16 March 2008

19. On the insolvencies of non-bank financial institutions
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...Bullsh1+ part 1 Banks, Brokers, & Bullsh1+ part 2 Money Panic Bear Fight The Breaking of the Bear The Riskiest Bank on the Street Here comes the CRE Bust (Quip on Lehman Brothers)...
Tuesday, 18 March 2008

20. Quick Morgan Stanley update from my lab
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
  This is a refresher to the The Riskiest Bank on the Street piece that I posted a few months ago on Morgan Stanley. Let me get straight to the salient points. High exposure to lev
Thursday, 20 March 2008

21. Early morning scan of events
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
For those that haven't noticed, I've begun sharing my early morning news and data routine with the blog. Here goes Monday moring EST. Is the Fed running out of ammo? Reserve
Monday, 31 March 2008

22. Reggie Middleton on the Street's Riskiest Bank - Update
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
This is the update to my forensic deep dive analysis of Morgan Stanley. It is still, in my opinion, the "riskiest bank on the street". A few things to make note of as you browse through my opinion a
Sunday, 06 April 2008

23. Banks, Brokers & Bullsh1t 3.0: Shenanigans at Morgan and Lehman
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
I've been promising to give an illustration of the shenanigans being played by the commercial and investment bank's for some time now, but I've been quite busy working on my entrepeneurial pursuits
Wednesday, 16 April 2008

24. I warned you about the risk of those I Banks
(Archived/Reggie Middleton's Boom Bust Blog/MyBlog)
...ive counterparty and credit risk to imperfect hedges to dead and depreciating assets held off balance sheet: The Riskiest Bank on the Street Is this the Breaking of the Bear? Banks, Broke...
Wednesday, 21 May 2008

Correction, and further thoughts on the topic Posted on  

Bear Fight - A most bearish view on Bear Stearns in a bear market / I did insinuate, or at least tried to, was that if real assets revert to mean valuations as I interpret them Bear Stearns will not be a prudent investment. As for institutions interested in portion...
Sunday, 13 January 2008
I know who's holding the $119 billion dollar bag! / Comments by Reggie Middleton
(I know who's holding the $119 billion dollar bag! / Comments by Reggie Middleton)
...ons, and recoveries (or lack thereof) unfold, those guesses become more accurate. The first pdf download is for bear stearns. These exposures are for MBIA and Ambac combined. As for recoveries, keep.