by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Lehman Brothers has been shopping their firm. Here’s Paul Muolo, who co-authored a book I’m reading, Chain of Blame, with OC Register’s Matt Padilla:
THIS JUST IN: It could be a busy Sunday again at the Treasury Department in Washington. Lehman Brothers (and Aurora Loan Services) may be sold in a deal brokered by the government. The rumor mill was working overtime dishing out speculation on Merrill Lynch, whose share price was sinking to a new 52-week low. There was also talk the Federal Deposit Insurance Corp. was contemplating the takeover of two depositories. Stay tuned…
Hank Paulson works weekends.
Lehman Brothers is one of the most treasured names on Wall Street. Its roots go back to before the Civil War, when they operated as cotton traders and established the Cotton Exchange in New York. They financed Sears, Woolworth’s, and Macy’s, at the turn of the century. They had a large hand in financing the growth that defined the 20th Century as “The American Century”, providing capital for the movie, television, aerospace, and information services industries.
One more venerable investment banking firm becomes a casualty of the credit meltdown.
Tom Vanderwell says:
It’s just mind boggling to think about how many financial institutions, not just small ones, but like you said, BIG names, are either in the “death spiral” right now or appear to be heading there…..
Stay tuned is right….
Tom
September 13, 2008 — 10:11 am
Susan says:
Stay tuned alright. This is big…could really start to affect these areas here in NJ which have felt little up until now.
September 13, 2008 — 12:03 pm
Brian Brady says:
“could really start to affect these areas here in NJ”
I gotta think every Bergen, Middlesex, Morris, Essex. Passaic, Monmouth, and Hudson counties are going to see lower prices.
September 13, 2008 — 1:24 pm
Robert Kerr says:
I don’t understand all the fuss (not here, all over the financial networks).
Lehman made very bad decisions. They took excessive risk and when the tide went out, they were naked.
Let Lehman be a textbook lesson for the survivors. This kind of periodic pruning of the foolish, even for icons like Lehman, makes us all stronger and wiser in the long run.
Welcome back, Moral Hazard. We’ve been missing you.
I surely though WaMu would fall first…
September 13, 2008 — 2:50 pm
Bob in San Diego says:
Victims of their own freakin greed.
September 13, 2008 — 5:04 pm
Bob in San Diego says:
An overview of the talks from the NY Times:
http://www.nytimes.com/2008/09/14/business/14spiral.html?em
The Feds trying to get Wall Street to cover one of its own, but they seem to forget that Citi, on the list of firms that could help, had to get 7.5 billion from Abu Dhabi.
Anyone like R.E.M.?
September 13, 2008 — 5:16 pm
Tom Vanderwell says:
You know, after reading a book like “The Bonfire of the Vanities” and seeing the type of egos that seem to be prevalent on Wall Street, I’m not real optimistic that Wall Street will save one if it’s own, even if it can do so…..
Tom
September 13, 2008 — 6:16 pm
Brian Brady says:
Read Michael Cook’s most recent comment, on his last post. Wall Street will be buying mortgages, within 3 years.
September 13, 2008 — 7:50 pm
Robert Kerr says:
Busy weekend for financial news.
Barclays Pls backed out of the Lehman deal and bankruptcy is the next course of action.
Merrill Lynch has been sold at fire sale price of $44B to Bank of America.
AIG says it needs $40B within a month or it may fail.
September 14, 2008 — 7:27 pm
Bob in San Diego says:
Robert beat me to the punch by a few minutes. Obviously a fellow CR reader.
September 14, 2008 — 7:32 pm
Brian Brady says:
Did anyone see that coming?
I wonder if this is the reward for the CFC deal. BofA is in for soem HUGE culture clash. There is a lot of (bruised) ego floating around MER and CFC.
September 14, 2008 — 7:36 pm
Bob in San Diego says:
“Did anyone see that coming?”
I’ve been following this all weekend and BofA was only mentioned in the context of backing off the Lehman deal. I never saw a mention of Merrill anywhere. My guess is that the Lehman talk was just a smokescreen.
Here are some great quotes from Merrill CEO John Thain. He sounds like a natural replacement for NAR’s Yun once BofA cuts hims loose.
September 14, 2008 — 7:46 pm
Brian Brady says:
Disturbing. I have a bunch of friends, still @ Merrill. I imagine they’ll be retiring soon (they are part of their old defined benefit plan)
September 14, 2008 — 7:51 pm
Robert Kerr says:
Robert beat me to the punch by a few minutes. Obviously a fellow CR reader.
Hi Bob. Not CR (Calculated Risk?), CNBC.
I caught the panic on CNBC while channel surfing this evening. Did you also see the news that The Fed is now “widening collateral” – taking even more bad paper – at the window?
How much worse can the news get?
September 14, 2008 — 8:06 pm
Robert Kerr says:
Disturbing. I have a bunch of friends, still @ Merrill. I imagine they’ll be retiring soon (they are part of their old defined benefit plan)
That’s what bothers me the most about this mess.
A lot of good people who had no part in the bad decisions made in the executive boardrooms will lose their jobs.
They’ll get meager packages and struggle for the next few years.
The nincompoops who did this to their companies, to their employees and to their investors will get the usual golden parachutes and land comfortably.
September 14, 2008 — 8:12 pm
Brian Brady says:
I’m not so sure they’ll lose jobs to “efficiency” either, RK. This industry is most definitely shrinking. What will be interesting is to see how boutique lenders and securities firms open, in the next few years.
Securities firms that broker stocks and bonds. Lenders that gather investors’ money, make portfolio loans, watch and srvice those borrowers like hawks.
Sounds quaint, doesn’t it?,
September 14, 2008 — 8:27 pm
Bob in San Diego says:
“How much worse can the news get?”
I’m not sure that is a question I want to ask.
Downey is down and just awaiting the count. They returned one of my short sale seller’s appraisal check (45 days after the appraisal) in a letter stating that they sold the loan and are no longer offering short sales on investor loans – just loan workouts.
WaMu is on life support and I’m not sure if anyone wants them. Too big for FDIC alone since they now have IMB on their hands (fwiw – the Feds moratorium on foreclosures with IMB is speeding up the approval process, though).
Citi is badgering my sellers with non-recourse loans saying that if they don’t pay a month’s payment, they’ll write off the loans, which off course doesn’t mean a thing in California.
Who is still standing other than BofA, Wells and HSBC?
September 14, 2008 — 8:30 pm
Bob in San Diego says:
So much for the year end bonuses. New York City real estate will feel this real hard.
September 14, 2008 — 8:34 pm
Bob in San Diego says:
re; widening collateral – from The Fed
September 14, 2008 — 8:36 pm
Robert Kerr says:
WaMu is on life support
The question I have is: What the hell is keeping WaMu afloat?! They’ve been on life support for 2 mos. Did they get a cash infusion that I missed?
September 14, 2008 — 8:42 pm
Bob in San Diego says:
Robert, I think the Street and a few political big mouths learned their lesson so when WaMu reported last week that liquidity and capital was sufficient, people in the know bit their lips hoping that the rumors with JP Morgan (which they deny) would end in a deal.
WaMu is a target because of their West Coast branches and had suggested that they could sell East Coast branches to raise cash if needed.
I’m betting that next weekend is busy.
September 14, 2008 — 8:57 pm
Bob in San Diego says:
I know AIG is in trouble because they insured financial investments, but I dont understand credit default swaps, so I don’t have a feel for the impact their problems will be on the rest.
Anyone want to educate me and maybe a few others out here about AIG and what it is exactly that they insure and how it woks?
September 14, 2008 — 9:03 pm
Bob in San Diego says:
On more WSJ piece that asks how bad can it get?
Judging by the lack of reality based math in determining the value of the Alt-A on the books of Citi compared to Lehman, it could be pretty bad for Citi.
September 14, 2008 — 9:46 pm
Brian Brady says:
Credit Default Swaps (or CDS) are part of the Wall Street culture, the sum of the parts is greater than the whole. A VERY basic explanation is that they are an insurance policy against credit events: BK, default, or even late payments.
The are NOT an insurance product but rather a derivative security (of sorts); kind of like a stock option. They are mostly supposed to be used as hedging tools but we all know how that gets abused.
AIG may have sold CDS and is having to pony up, now. I’m not sure; I’m speculating as to the CDS problem at AIG.
Again, this is a VERY basic explanation.
September 14, 2008 — 10:06 pm
Michael Cook says:
WaMu still has a huge depositor network. With their sky high CD rates, they are probably raise billions of pretty cheap capital. The question is can they raise money faster than they can lose it? They have billions of dollars of write downs to come and other credit markets are essentially closed to them. WaMu can make a better stand than Lehman because of their general bank. Not sure how much longer they can do it though.
September 15, 2008 — 7:40 am
Kam Hubbard says:
500 point drop in the Dow Jones today.
This is what happens to bad business models and incompetent board of directors in some companies.
Some of these weak financial firms need to die a capitalistic death without a government bailout(s).
Say what you want about Glenn Beck political views he was dead right on this issue!
September 15, 2008 — 2:04 pm
Michael Cook says:
“500 point drop in the Dow Jones today.”
Who is handicapping the rebound tomorrow? I would not be surprise to see some of this come back. How much will give us a sense of where the market really is. If tomorrow is another big down day, then God help us all.
September 15, 2008 — 2:50 pm
Bob in San Diego says:
Tomorrow depends on what happens with AIG. Many are banking on the Fed dishing out aid. I’m not.
The JP Morgan Chase / WaMu deal is just around the corner.
September 15, 2008 — 4:35 pm
Bob in San Diego says:
WaMu dropped to $1.80 in extended trading. The only question now is will they be a penny stock when JPM pulls the trigger?
September 15, 2008 — 4:43 pm
Robert Kerr says:
Dear Jeff Brown,
Approx. 6 months ago, your opinion was that this was just a normal downturn.
Do you still believe that?
September 15, 2008 — 9:02 pm
Morgan says:
Brian – I think this last sentence should be rewritten:
“…becomes a casualty of the credit meltdown.” to
“…becomes a casualty of their own (not uncommon) greed and negligent risk management practices.”
September 15, 2008 — 10:13 pm
Brian Brady says:
Is there really a difference, Morgan? I think the latter is a working definition of the former.
(Sigh of resignation)
September 15, 2008 — 10:35 pm
Michael Cook says:
Let the Jeff Brown razzing begin. I started it on another post. God Bless his optimistic heart, but it is has been so rough out there. Not many people would have predicted this six months ago, but I have to say this could end up being one of the worst financial crisises(sp?) ever. The sad thing is that I am not sure how to blueprint a way out of it.
Morgan: Greed is such an ugly word. Most CEO’s call it “the shareholders best interest.” After all, who benefits from it? Ok, sure, CEOs make millions and in the end its the shareholder holding the bag of poop, but those same shareholders will crush the stock if earnings are off by $0.01 or if growth is slower than competition and call for the CEO to be ousted. Everyone wants to have their cake and eat it too. If they are greedy, its only because we make them that way and we applaud that behavior.
September 16, 2008 — 7:31 am
Robert Kerr says:
Let the Jeff Brown razzing begin. I started it on another post.
Where, Michael?
September 16, 2008 — 1:25 pm
Brian Brady says:
All right, you two.
Jeff (and I) stuck our neck out. I have an inordinate amount of respect for Jeff’s prowess and even more respect for his public opinion. We’re all just learning the full extent of the undisclosed leverage these investment firms took on.
Not to sound like a Presidential candidate, but the economy is, fundamentally… sound. Jeff’s predictions are, fundamentally… correct. Nobody, not even you, Robert, had ANY idea of how much crap Wall Street buried.
I respect Jeff for having a take; too few people are willing to actually TRY, nowadays.
September 16, 2008 — 1:55 pm
Robert Kerr says:
I’m not looking to gloat or razz anyone. I would seriously like to know if Jeff has changed his mind.
And, Brian, with all due respect, I don’t agree that our fundamentals are good.
Our currency has lost 25-30% of its value in the last 8 years against the major international currencies.
Our job creation engine is dead – and I mean *dead*, we could exceed 1M jobs lost this year.
Government debt is outrageous: $9.7T. We overspent $103B in July alone.
Our economic engine – or what’s left of it – is 70% consumption. Seventy percent! We’ve been so busy eating cheap, easy money and consuming that we’ve lost the ability to grow the economy via production. We absolutely have to get that back; growth by consumption is not sustainable.
Per capita savings are minuscule while per capita personal debt is off the charts.
Will we recover? I have no doubt that we will. Eventually. But let’s not sugar coat our situation.
This economy has been neglected and abused since January of 2001 and all the problems are coming to a head.
I originally thought we were headed towards a repeat of the 1970s, but this could be worse. A depression? Possible.
I’d be interested in discussing this further. This is probably not the forum for that.
September 16, 2008 — 3:35 pm
Brian Brady says:
I was sort of goading you, Robert; I knew you’d disagree with my conclusion that the economy is fundamentally sound.
“I’d be interested in discussing this further. This is probably not the forum for that.”
This is:
http://activerain.com/blogs/robertkerr
Seriously, I’d be a regular reader
September 16, 2008 — 3:43 pm
Morgan says:
i think there’s a difference. we don’t call someone a casualty when they off themselves. i think it makes them look like unwilling participants when in fact their basically just heroin addicts OD’ing.
Michael, I think that as a public company you put yourselves at the mercy of the whims of the market, but as a shareholder you’re being LIED to. How are you supposed to make sound investments and decisions when you’re being lied to? All of these CEOs said the following:
– we have plenty of cash
– this is a temporary downturn
– subprime is contained
– our assets are high-quality
These are flat out lies all thrown out there in a last-ditch CYA effort by these CEO’s hoping that the lid wouldn’t get blown off.
Well, we’re about to see this whole thing go to a new level. AIG going in to conservatorship? WaMu and Wachovia are on life-support, the regional banks are going to fold. This isn’t about anything except alchemy gone wrong and the science experiment was fueled by greed.
September 16, 2008 — 5:14 pm
Robert Kerr says:
Seriously, I’d be a regular reader
Ha! You set me up. (shaking my fist towards San Diego)
September 16, 2008 — 6:54 pm
Robert Kerr says:
AIG, the world’s largest insurer has now fallen.
Insurer to sell off businesses
September 16, 2008 — 10:36 pm