Bulls, Bears & Bucks #20: Lehman failliet, Merrill overgenomen

quote:

Op woensdag 10 september 2008 10:41 schreef Freak187 het volgende:
Ik las ergens op BBC dat de Lehman bros. ook in zwaar weer zit?

quote:

Op woensdag 10 september 2008 10:07 schreef Semisane het volgende:
tvp, want ik ben eigenlijk nog steeds benieuwd over de val van het kapitalisme en vrijemarkt principe welke vooral de grote bedrijven in USA altijd zo voorstonden en nu masaal loslaten nu ze het moeilijk hebben.

Niet alleen Fannie Mae en Freddie Mac, maar ook opeens de "oer-industie van de USA, Autoproducenten vragen Washington om hulp

Ergens toch wel komisch dat ze geheel desperaat terug in de schoot van vadertje-overheid kruipen.

quote:

Op woensdag 10 september 2008 10:40 schreef ktnxbye het volgende:
omdat ik wil weten hoe het met de dollar gaat... tvp

quote:

Op woensdag 10 september 2008 11:06 schreef icecreamfarmer_NL het volgende:

[..]

ja die mag wel meedelen in het verlies maar niet in de winst

quote:

Op woensdag 10 september 2008 10:48 schreef Xtreem het volgende:

[..]

Is dat wat nieuws dan?

_tvp

quote:

Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

As the ongoing debt crisis continues, we have transitioned from Stage 1, the initial Wall Street impact of debt deleveraging, to Stage 2, the Main Street impact, and on Sunday kicked off Stage 3, the coordinated Fiscal and Monetary response to the debt crisis. Before we get to the What Next? question, let's revisit the basics of what is happening and what it means.


1. What is a "Credit Crunch"?

The simple answer is that a "credit crunch" is a general decline in the the supply of, and demand for, credit.

Under certain circumstances, the market (and sometimes the Federal Reserve) can induce a decline in the supply of credit (or at least a decline in the growth rate of the supply of credit) by raising interest rates. This makes money more expensive for borrowers, and as a result slows the growth and demand for available credit. This is what a central bank attempts to do when the growth of inflation exceeds their "comfort level."

But a credit crunch occurs when banks become more risk averse - less willing to lend - even though interest rates may remain the same, and in extreme cases, even though interest rates may go lower.

This risk aversion on the part of lenders makes it more difficult for even the most credit-worthy borrowers to obtain money at reasonable terms. In effect, interest rates - the cost of money - can become infinitely high for many borrowers. As a result, it becomes difficult to fund projects and investments, which can slow economic growth, which in turn can make lenders even more unwilling to lend; a vicious cycle of economic pain.


2. Why does credit growth matter in the first place?

Because in our fiat-based monetary system, economic growth is dependent upon credit expansion.

What does that mean? And why is it a problem?

First, a "fiat-based monetary system" is simply the name economists give to an economic system where money is created through fractional reserve banking techniques. Fractional reserve banking is the practice of issuing more money than a bank holds in cash reserves. So, in a fiat-based monetary system, if risk appetites are supportive - that is, if borrowers are willing to take on debt - then credit expansion can feed into normal risk-seeking behavior, and if excessive can foster unsustainable booms; dot.coms, housing.

As long as credit expansion and demand for credit continues at an accelerating pace, the appearance of prosperity continues as asset prices increase.

The "accelerating pace" aspect is critical. It is the key to maintaining the boom. Access to capital and credit is essential to growth in our current economy, and if that access is restrained the cycle reinforces itself.

But there are two sides to the credit coin. Access to capital is one side, but demand for capital is the other side. That is the side the central bank cannot control. A central bank can make credit available, but there must be a demand for it or it's like throwing a party no one comes to.

As this debt crisis has now entered the second stage, where the impact on Main Street begins to intensify, there will be a kickback to Wall Street in the form of sluggish consumer spending, lower economic activity and a deceleration in credit demand and risk appetites. As the New York Times reported this morning, the Federal Reserve yesterday said consumer borrowing grew at an annual rate of just 2.1 percent in July, the slowest pace since last December. The category worst hit was auto loans, where credit demand fell to its lowest level in 16 years.


3. What do we mean by "credit expansion," anyway?

First, credit is not in and of itself necessarily a bad thing. Capitalism thrives on the productive use of credit. But what has transpired over the past decade is that credit has increasingly been used as a substitute for, or to mask, weak economic growth.

Since the early 1990s, new money was created by the banking system and offered at artificially low interest rates and, later, to borrowers with increasingly low credit quality. By offering willing borrowers money at artificially low rates, this encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened.

This is how debt was pyramided to such an extent that one small setback, in subprime borrowing for example, resulted in such a widespread problem, problems which quickly spread to other, supposedly safe credit risks.

By offering willing borrowers money at artificially low rates, this encouraged increased time preferences among economic actors, which is to say that investment horizons were lengthened and risk tolerances were widened. This money was then overinvested and misallocated by investors in dot.com ventures and houses.

In hindsight, once the herd has dispersed, it always seems as if these investors were simply dumb. After all, who could now believe that an "undertaking of great advantage; but nobody to know what it is" could be a reasonable investment? Probably, no one. However at the time, during the South Sea Bubble of 1720, quite a few investors figured just such a company made really good economic sense. Seriously.


4. How, then, did we transition from credit expansion to a credit crunch?

Because credit expansion distorts capital investments and spending by creating the "illusion" of prosperity, when the time comes to pay back what is borrowed investors and lenders discover that they have misallocated their capital. This leads to losses because the only way to turn a misallocation of capital into a gain is to sell it at a higher price to someone who still believes it will go up in the future.

This loss of capital creates risk aversion; lenders suddenly find they are not being repaid, say, by subprime borrowers who are defaulting on their mortgages. These lenders in turn - remember this is a fractional banking system - find that because they used the repayment of these loans as collateral for loans they took out to "malinvest," suddenly discover they are unable to repay some of their debts. The lender's lender is in the same boat, as is the lender's lender's lender. So, what do these lenders do? They "de-lever." In other words, they sell whatever they can - whatever is still liquid (say, U.S. stocks, for example) in order to raise capital to repay loans. This pressures asset prices.

We then have a situation where the fear of not having money (U.S. dollars) to pay down debt spreads. This deepens further risk aversion. Time preferences shrink. Lenders in many cases cannot, or are no longer willing to, extend credit beyond the very short term, for they fear not being repaid.


5. What Next?

So what happens next?

The Fed can (and is) making even more credit available; a monetary response. This response is designed to relieve tight credit conditions among financial institutions, but so far, despite an array of special lending programs created over the past year, the creation of weird acronyms and the opening of access to the Fed's discount window to broker-dealers, the response has been weak, largely because of the size of the housing market, the speed of the housing deflation and the leverage involved.

When monetary policy is insufficient to stop the credit crunch, government can step in and create any number of mechanisms to essentially bailout lenders and borrowers; a direct fiscal response. We are seeing this happen now with Fannie Mae (FNM) and Freddie Mac (FRE).

But by targeting asset prices and attempting to "manage the economy" the Fed and the government ironically create the conditions for a market that is too large for it to control. As a result, crashes, unwindings of speculative bubbles, become more devastating, and affect far more people in the real economy.

The next step for the Federal Reserve in terms of monetary policy will probably be to follow up the FNM, FRE bailout with a series of short-term interest rate cuts, perhaps beginning as soon as the September 16 meeting. As a series of rate cuts will likely not (at first) appear to be sufficient to kickstart credit demand (with the psychology of deflation now beginning to firmly take hold), the Fed will have little choice but to adopt the quantitative easing policy the Bank of Japan used when the typical path of monetary expansion - reductions in target short-term interest rates - failed to increase the money supply.

On the fiscal side, one consequence of the debt crisis will be new, sweeping regulations for financial institutions, as well as increases in the balance sheet of the government. The regulatory changes, some of which are already being kicked around in Washington, will further impinge the earnings ability for banks and financials.

Presently, the market is most focused on which banks will survive the crisis. As monetary and fiscal policy combines to maintain at least the appearance of no large bank failures (local and smaller regionals will be left on their own), the shift will move by early next year from fear of failure to questions about how these banks will be able to make money under a strict regulatory environment.

Meanwhile, other fiscal policy will focus on increases in public works projects targeting infrastructure, as well as increases in military spending and other government programs to help Americans deal with the transition from boom to bust and back again.

This will play out over a long period of time, almost in slow motion. There will be many meaningless policy announcements and adjustments and the captains of financials, real estate and industry will make many, many more declarations that The Bottom is in until eventually no one listens anymore. But we must realize that even now, just when it appears it is over, it is really only beginning.

quote:

Op woensdag 10 september 2008 10:07 schreef Semisane het volgende:
tvp, want ik ben eigenlijk nog steeds benieuwd over de val van het kapitalisme en vrijemarkt principe welke vooral de grote bedrijven in USA altijd zo voorstonden en nu masaal loslaten nu ze het moeilijk hebben.

Niet alleen Fannie Mae en Freddie Mac, maar ook opeens de "oer-industie van de USA, Autoproducenten vragen Washington om hulp

Ergens toch wel komisch dat ze geheel desperaat terug in de schoot van vadertje-overheid kruipen.

quote:

Op woensdag 10 september 2008 13:22 schreef geenID het volgende:

[..]

Er was al amper kapitalisme, alles zit onder zware regulatie en vooral dat laatste is debet aan de huidige systematische problemen. Dit type structuur wordt quasi-liberalisatie genoemd en is uiteindelijk nog erger dan nationalisatie. De SEC, FDIC, FSIS, etc., kunnen heel leuk individuele kleine probleempjes oplossen en symptoombestijiden, maar er komt een extreme moral hazard door en dan krijg je de huidige problemen. Kapitalisme valt het niet te noemen iig.

quote:

Op woensdag 10 september 2008 13:36 schreef Semisane het volgende:

[..]

Toch blijft het raar dat deze bedrijven uit markten en industriën die altijd het hardst hebben geroepen dat de overheid zich vooral niet moest bemoeien met hun en hun methodes _{Financiele markt en auto industrie}, nu het hardst rennen naar die zelfde overheid voor hulp.

Het meest triest is uiteraard dat er idd niks zal veranderen, daar de overheid waarschijnlijk niets meer zal doen dan wat symptoombestrijding en kleine niet-er-toe-doen probleempjes oplossen en de maatschappij zal laten opdraaien voor de enorme kosten die men zal moeten maken om deze bedrijven te redden.

quote:

Lehman posts $3.9 billion loss, selling assets

SAN FRANCISCO (MarketWatch) -- Lehman Bros. Holdings on Wednesday said it lost $3.9 billion in the third quarter after taking a gross mark-to-market loss of $7.8 billion. The company also said it cut its quarterly dividend to 5 cents a share from 68 cents a share and will spin off its commercial real-estate holdings to shareholders while selling a majority stake in its Neuberger Berman investment-management division.

Lehman's third-quarter loss amounted to $5.62 a share. Analysts surveyed by FactSet Research had been looking for the company to report a loss of $2.81 a share, while Morgan Stanley predicted the financial firm would post a loss of $2.80 a share, on the back of a $3.5 billion write-down.

The firm said late Tuesday that it would report third-quarter results before the open Wednesday, a week earlier than had been anticipated, in a bid to calm investors shaken by a session that wiped out nearly half of the brokerage firm's market. Shares of Lehman, which had been scheduled to report results on Sept. 18, fell about 45% on Tuesday, plunging to $7.79. It was the company's biggest one-day percentage decline ever, dragging the share price down 85% from where it stood a year ago.

Pressure has been building on Lehman to disclose its financial status as financial markets have grown increasingly concerned over its ability to raise capital and shed underperforming assets, against a backdrop of the government taking over Freddie Mae and Freddie Mac and, earlier this year, Bear Stearns collapsing. Underscoring concerns about the brokerage's financial health, Standard & Poor's put Lehman credit ratings under review for possible downgrade on Tuesday.

quote:

Op woensdag 10 september 2008 13:49 schreef SeLang het volgende:

[..]

Wat betreft Bear Stearns, Fannie Mae, Freddie Mac etc: dit is natuurlijk geen bailout voor de aandeelhouders.

[ afbeelding ]

[ afbeelding ]

quote:

Op donderdag 11 september 2008 15:14 schreef Basp1 het volgende:

[..]

Maar wat is nu de rente die betaald gaat worden op die obligaties, dat staat alleen niet in dit bericht.

Wordt het een reele rente die boven de inflatie uitkomt, of niet, of zijn er veel niet amerikaanse investeerders die erop gokken dat de dollar nog een stuk in waarde zal stijgen en men zodoende nog wel wat rendement hierop gaat draaien.

Ik vind het verschil tussen de huidige 70 en toendertijd 122 rentepunten opslag nu ook niet echt schokkend te noemen.

quote:

Op donderdag 11 september 2008 16:30 schreef Basp1 het volgende:

[..]

Maar het gaat hier maar om 2 jarige obligaties die dus 2.5+.0.7 = 3.2% geven.

quote:

SAN FRANCISCO (MarketWatch) -- Lehman Brothers Holdings Inc is actively shopping itself to potential buyers including Bank of America Corp., The Wall Street Journal reported late Thursday on its Web site, citing people familiar with the matter. Shares of Lehman dropped more than 40% on the day as it struggles to shore up confidence with investors and clients. Potential buyers are looking to the U.S. government to help backstop future losses at Lehman, according to the Journal.

quote:

Op donderdag 11 september 2008 16:11 schreef SeLang het volgende:
Euro: 1.3894

quote:

The death of OPEC
Posted Sep 11 2008, 07:01 AM by Douglas McIntyre Rating: Saudi Arabia walked out on OPEC yesterday, saying it would not honor the cartel's production cut. It was tired of rants from Hugo Chavez of Venezuela and the well-dressed oil minister from Iran.

As the world's largest crude exporter, the kingdom in the desert took its ball and went home.

As the Saudis left the building, the message was shockingly clear. “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate told the New York Times. “We will see what the market requires and we will not leave a customer without oil."

OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude was due to "oversupply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the U.S. and European Union for a time. That political battle is only at its beginning.

The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. The breadth of that deposit has now expanded.

OPEC needs the Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member, it forfeits its leverage.

OPEC has made no announcement about any possibility of dissolving, but the process is already over.

quote:

Op vrijdag 12 september 2008 10:17 schreef simmu het volgende:
hmmmmm.... wat moet ik hiervan brouwen. het reguliere nieuws meld niks, en ik heb ff geen uurtje de tijd om het helemaal na te gaan. (als ik kijk in de afgrond van de wieg staart de baby terug die wil eten!)
[..]

bron

quote:

Crisisoverleg zakenbank Lehman Brothers
De afgelopen dagen verloor Lehman Brothers op de effectenbeurs het grootste deel van zijn waarde. De Fed, de centrale bank van New York, heeft vannacht crisisoverleg gevoerd over de zakenbank Lehman Brothers. Daarbij waren waarschijnlijk ook potentiële kopers aanwezig. De vierde Amerikaanse zakenbank dreigt om te vallen doordat ze miljarden heeft verloren door de hypotheek- en kredietcrisis. De afgelopen dagen verloor Lehman Brothers op de effectenbeurs meer dan driekwart van zijn waarde.

Domino-effect
Bij het crisisoverleg van vannacht waren verschillende grote banken aanwezig die mogelijk geïnteresseerd zijn in een gehele overname van Lehman Brothers of van delen van de bank. De Fed is bang voor een domino-effect als er geen koper wordt gevonden voor de bank. Lehman Brothers is een van de oudste zakenbanken van de Verenigde Staten. De bank werd groot in de 19e eeuw, toen ze de katoenteelt en de spoorwegbouw financierde.

quote:

Op zaterdag 13 september 2008 16:14 schreef Aether het volgende:

quote:

Op zaterdag 13 september 2008 16:18 schreef Drugshond het volgende:

[..]

En over een maand kunnen we Washington Mutual bijschrijven in dit beruchte lijstje.

quote:

Op zaterdag 13 september 2008 16:25 schreef Swetsenegger het volgende:
Hoe is het nu mogelijk dat de dollar tov de Euro opeens weer zo uit het slop is gekropen?

quote:

Op zaterdag 13 september 2008 18:45 schreef JZweeds het volgende:

[..]

En tussendoor nog eventjes AIG en Merill

quote:

Lehman Deal Could Come Tonight As High-Level Talks Continue

Talks continued Saturday between federal officials and top Wall Street executives aimed at resolving the crisis swirling around Lehman Brothers Holdings Inc. and soothing jittery U.S. financial markets.

While the situation remains fluid, some sort of solution might be reached as soon as Saturday night, according to people familiar with the situation. But it isn't clear how much progress has been made toward clearing the biggest hurdle in the discussions, which is whether any government funding will be provided to help engineer a rescue for the battered investment bank.

Treasury Department and Federal Reserve officials have made it clear to participants that no government bailout should be expected. Potential bidders, worried about the risk of buying an ailing financial institution like Lehman, want the government to step in with a package similar to what was offered to J.P. Morgan when it bought Bear Stearns Cos. Then, the federal government agreed to absorb as much as $29 billion in losses.

On Saturday, the main task ahead in discussions being led by the Federal Reserve is identifying whether a so-called "bad bank" structure could be designed to hold Lehman's souring assets. That issue is now seen by people familiar with the situation as the key stumbling block to completing a deal, especially if Treasury and Fed officials keep digging in their heels on opposition to a government-backed rescue.

Potential buyers such as Bank of America Corp. and Barclays PLC are loathe to take on Lehman's bad assets, which are seen as an immovable object to getting a deal done, according to people familiar with the situation.

At an emergency meeting Friday night called by the Federal Reserve Bank of New York, New York Fed President Timothy Geithner, described two potential scenarios: either a liquidation of Lehman or an industry-driven solution in which Wall Street firms would possibly providing financing to remove some of Lehman's real estate assets, one person briefed on the matter said.

Most of the Wall Street executives present at the meeting listened and asked questions, "but didn't show their hands" as to what they thought, this person said.

In addition to Mr. Geithner, government officials in attendance included Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox. The Wall Street executives included Morgan Stanley Chief Executive John Mack, Merrill Lynch Chief Executive John Thain, J.P. Morgan Chase CEO Jamie Dimon, Goldman Sachs Group CEO Lloyd Blankfein, Citigroup Inc. head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC and Bank of New York Mellon Corp.

Other industry leaders that attended were Credit Suisse CEO Brady Dougan, Morgan Stanley Chief Financial Officer Colm Kelleher, Citigroup Chief Financial Officer Gary Crittenden, UBS AG Chief Risk Officer Thomas Daula, J.P. Morgan investment bank co-head Steve Black and Goldman Sachs Co-president Gary Cohn, according to a person familiar with the matter.

At the New York Fed's fortress-like stone and iron headquarters in lower Manhattan, Mr. Black and Steve Cutler, J.P. Morgan's general counsel, left the building early Saturday afternoon in a black sedan.

Mr. Cutler was carrying a manila envelope thick with papers. He exited through the heavily guarded garage entrance at the corner of William Street and Maiden Lane, declining to comment on the talks.

The meeting appeared similar to one a decade ago when the New York Fed pulled together top Wall Street executives to prevent the collapse of hedge fund Long-Term Capital Management.

In all, about 30 banks were represented at the meeting, which also included an assessment of the risk Lehman's trading partners and other counterparties face and discussion of Merrill Lynch and Washington Mutual Inc., which saw their stock prices slide in recent days on growing fears about their financial condition.

In trying to hold firm to their no-bailout stance even while pressing for a deal, federal officials could try to pit Bank of America and Barclays against each other. But that leverage can work only if both banks stay in the discussions.

Bank of America and Barclays know each other very well, having considered a merger several years ago. More recently, Bank of America agreed to pay $21 billion for ABN Amro Holding NV's LaSalle Bank of Chicago in 2007. That deal came at a time when Barclays was trying to buy ABN and fend off a European consortium bid. Bank of America's purchase was seen at the time as helping that Barclays bid, which ultimately failed.

At Barclays, a big question will be whether President Robert E. Diamond Jr. and CEO John Varley both agree on buying all or part of Lehman. Mr. Diamond is eager to expand Barclays's U.S. Investment bank operations. But the unit, called Barclays Capital, is also responsible for write-downs the bank has recorded.

After orchestrating the rescue of Bear and advising on the shift of Fannie Mae and Freddie Mac into government conservatorship, Federal Reserve officials would very much like to draw a line with Lehman and avoid any involvement that goes beyond the role officials have played in advising Lehman to help it resolve its problems.

After Bear's collapse, the Fed set up lending facilities to help investment banks with short-term liquidity needs. As of Wednesday, it hadn't been tapped by Wall Street since July. The mere presence of the lending program – called the primary dealer credit facility - might be helping to reassure market participants that Lehman is a reliable counterparty, since they know it has access to the facility should it need it. It isn't clear whether the Fed would be willing to extend its lending facilities even further for anything beyond helping a firm manage a short-term liquidity crisis.

"The financing that we did for Bear Stearns is a one-time event that has never happened before, and I hope it never happens again," Fed Chairman Ben Bernanke told lawmakers in April.

"As far as I know, we've never lost a cent. So it is not our intention on anything like a regular basis to be putting taxpayer money at risk."

Mr. Bernanke also has expressed reservations about lending to troubled institutions. "The intended purpose of Federal Reserve lending is to provide liquidity to sound institutions," he said in a July 8 speech. The Fed used its lending powers to help Bear in March "only because no other tools were available to the Federal Reserve or any other government body for ensuring an orderly liquidation in a fragile market environment."

Paramount to Fed officials is the broader health of the financial system. Behind the rescue of Bear was a fear that its collapse would disrupt already shaky credit markets.

Conditions now are mixed. Short-term lending rates such as the London Interbank Offered Rate, or Libor, are elevated relative to expectations for the Fed's benchmark fed funds rate, a sign of pervasive risk aversion, but have been stable. Risk premiums on junk bonds also are back to levels they hit in March. But the broader stock market has been relatively stable through this latest round of turmoil.

One constraint for federal officials is that many of the steps they hoped to have taken to resolve another investment bank crisis have not yet been taken. Investment banks are big players in the credit default swap market, in which firms trade contracts tied to corporate default risks. It's an immense market that trades against $62 trillion worth of debt. Officials worry that the collapse of an investment bank could send problems cascading through the financial system through this market. They've been pushing Wall Street to create a new clearinghouse to diminish that risk, but it isn't in place yet.

They've also want Congress to develop new procedures to handle the collapse of an investment bank so that it can be closed by the government in an orderly way, as happens with failed commercial banks. That also is far from completion.