More Thoughts on Lehman

This morning Lehman preannounced it's quarterly results: a loss of $2.8 billion, or $5.92 a share. Lehman was forced to say something to Wall Street after it's share price nosedived 45% yesterday. Unfortunately all they could say was that they are in "advanced talks" to sell 55% of Neuberger Berman and discussions with Black Rock to sell some of it's UK mortgage portfolio. In my opinion, the failure to pull any deals off reflects very poorly on Lehman. Additionally, the fact that the Korean Development Bank and Lehman broke off talks due to differences on valuations makes me question Lehman's capability to properly mark assets to market. All told, I really think they are going to have a tough time staying independent. I foresee a buyout of the firm in the next week or two.

What is different about this capitulation in Lehman's stock price is that is wasn't driven by rumours. After the SEC began investigating firms and hedge funds for spreading what were supposedly false rumours in order to make their short sales more profitable, I have noticed a marked decrease in these rumours flying around the airwaves. In fact, according to Reuters:

"Goldman is a willing counterparty to Lehman across all our businesses," spokesman Michael DuVally told Reuters.

"Morgan Stanley continues to trade as usual with Lehman Brothers," spokesman Mark Lake said.

Spokesman at Credit Suisse AG and Citigroup Inc also said they continued to trade with Lehman across all their businesses.

This is a full 180 from what we were hearing a few months ago.

Finally, I read that the price of insuring Lehman and Wamu debt skyrocketed yesterday. With AIG shedding 20% yesterday as well, it makes me think that they were writing a whole lot of CDS's on these firms last quarter (remember that AIG took a $5.57B loss on their CDS portfolio last quarter). That doesn't bode well for AIG's upcoming results.