Sunday, 16 March 2008 01:00

Web chatter on Lehman Brothers

  • WSJ: Lehman's liqudity position stronger than BS was but weaker than other peers. Lehman learned lesson from 1998 liquidity crunch: less reliance on short-term funding.
  • Cumberland: Main difference to BS: Lehman generated over 60% of their revenues outside the U.S. in Q4 2007.
  • Bloomberg: March 14: Lehman Brothers, largest mortgage underwriter in U.S., obtained a $2 billion, unsecured, three-year credit line from 40 banks. "The unsecured facility replaces an existing credit line"; JPMorgan and Citigroup led the effort.
  • Reuters: CDS spreads spiked to 465bp after Bear announcement, most among investment banks.
  • Fitch (via RGE): At the beginning of the turmoil Bear Stearns had the highest toxic waste ("residual balance") exposure as percent of adjusted equity on balance sheet: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%.
  • Fahey (Fitch): Lehman Brothers reported Level 3 assets-to-equity of 1.68x in 3Q07 (BSC 1.56; GS 1.84; MER 0.70; MS 2.74: gross notional Level 3 asset value, not netted with derivatives hedges in Level 1 or 2 as reported by other banks)
  • Hedges on Level 3 assets (i.e. "short their own instruments") produced book gains of $750m at Lehman (largest amount among 5 brokers) but Fitch decided that gains from credit spread widening will not be considered in evaluating operating performance
    --> Gains from structured notes spread widening as percentage of pre tax earnings was 62% at Lehman in Q3; 129% at BS; 7% at GS; -17% at ML; 17% at MS.


It would appear that Lehman's hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. The question is, "Can they monetize those hedges?". I'm curious to see how the options on Lehman will be priced tomorrow. I really don't have enough. Goes to show you how stingy I am. I bought them before Lehman was on anybody's radar and I was still to cheap to gorge. Now, all of the alarms have sounded and I'll have to pay up to participate or go in short. There is too much attention focused on Lehman right now.

As I have said all along, the golden boys at Goldman are not that golden. Bloomberg and the Telegraph are reporting a 50% drop in net and $3 billion in write downs. Told ya'. I wasa little stingy on Goldman too. I need to loosen up, I just hate overpaying. It appears that the Riskiest bank on the street is still flying under everybody's radar, despite having the most exposure to level 3 assets and the most leverage, and the most exposure to counterparty risk. Amazing. I suppose I should take my stingy self over to buy some more puts on them before they get too popular.

Last modified on Sunday, 16 March 2008 01:00

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