Lehman Brothers, going down?

Who do you think is going to acquire Lehman brothers? A big American bank like BOA or Wachovia?

....wonder how this will all play out.

time to make a move for greener pastures. i suggest going to third world countries with your bonuses and making a living working on a cow farm.

counterparties are still trading with them despite the fall.

there are obvisouly a lot of shorts on the stock.

once they are able to sell assets and increase liquidity, they should be fine.

...they will be bought in the next couple of days at a very low price. Their skyrocketing cost of funding makes it impossible to do business day to day. Deal may be anounced as soon as tommorow mornign when they anounce earnings at 730...just my opinion...

counter-parties are still trading with them but what will happen when lehman can no longer extend credit lines to their clients? That might happen if they don't manage to get the liquidity they need.

liquidity that they need ... like from the Fed?

Yeah. Good thing they have access to that now otherwise they'd be just be another Bear Stearns.

I'm not sure how you can be so certain they will survive.

is a non-issue as long as the fed continues to lend, however if the rating agencies downgrade heavily and lehman has to repay credit lines or post more collateral to various CP's the fed may have to step in. They can only borrow so much.

Just because CP's are still "trading" with them doesn't mean people trust them or intend to continue doing so in a meaningful way. Fear is the mantra, and LEH must prove the market otherwise.

That said I DO think LEH is worth waaaaaaay more than their current valuation. Despite the liquidity issue, let's take a look at the company now.

Neuberger Berman supposedly worth 6-8 billion or more depending on who you believe, entire IMD division may be worth 10b or more.
They've got a midtown office building bought for 700mm in 2001, worth at least 1 billion in a fire sale/leaseback, even in this market. (I think they own their jersey city office too, but forget about valuing/selling that).
Various hedge fund/private equity/other holdings.
Not to mention the other 20,000+ employees that haven't been fired yet. They must be worth something, right? (negative value)

Clearly I'm not in FIG, nor can I accurately value a bank (clearly nobody can, and obviously they will be announcing losses on the 65b RE portfolio) but with a market cap at 5 billion and change and assets that could be converted into cash (or at least an announcement that they will be) in the $10 billion range I can't imagine them going down.

Obviously Bear Stearns was in a similiar position, but they didn't have the Fed printing money for them at will.

I'm not saying they aren't in bad shape, nor am I saying that the losses may not cripple them in the future, but unless they raise capital that dilutes current c/s holders by 35%+ I think we see the stock heading up tomorrow. If they can sell part of NB, sale/leaseback the building, fire 2,500+ people, and maybe bring in a few billion in capital (or any combination of the above) they'd be pretty solid. As if that was all easy as pie.

Not to mention the buyout talks, etc.

These are my rambling thoughts, please tear me apart.

Disclosure: long LEH (clearly)

What are you talking about LEH is going down? Im looking at the chart right now today it totally ripped.... oh wait... shit...

Damnit!.... my chart is upside down!

Matty - what price you long Leh from is you dont mind me asking

They are gone after this week

Friend at major firm was told to take all their collateral back from them today

Slightly underwater including the after-hours, but only by a bit.

Unfortunately I don't trade stocks all day, would've loved to have been watching that chart tick by tick. I definitely would have pounced on the morning drop, been waiting for it to hit 8, I'd like to thing I'd have sold in the 10s on the rebound for a handy profit, and rebought later in the day.

Realistically who knows, but that's been my gameplan.

I don't like to put in any kind of automatic orders, especially with this kind of volatile market. I don't want to get slaughtered by a gap down.

i disagree with you on this one matty2000--not that i think lehman is actually worth its current valuation--all the reasons you've mentioned have made perfect sense to me.

on the other hand, i've had that view about a lot of financial companies over the past year, and i've watched my jaw drop every time they got destroyed in the market and then fire saled (fannie and freddie begin the latest example).

so lately i've started modifying my thinking--i think it has something to do with the nature of financial institutions: they really aren't like any other business in the world. fundamentally, finance is a con(fidence) game, and liquidity risk is far more important for these companies than a lot of finance classes or theory (focus on the "fundamental value") would lead you to believe.

it sounds like lehman's quickly entering the arena of a rapid loss of confidence--and given history, rapid confidence losses lead to rapid firm collapses. whether lehman makes it through tomorrow, rebounds, and you make a killing or not, i think we're going to hear about a deal relatively soon.

although really, this time, the fed should just let them die. everybody's seen this one coming for so long, and i can't imagine it's going to destroy the financial system--lehman doesn't play a critical role in the markets.

otherwise, give it a couple months, and the US Treasury will own half of wall street...

I believe you're correct, and I too have begun looking at things that way. I doubt they will make it as a standalone entity, and I'm not sure what will happen. Granted I'd love for a deal to be announced in the morning in the $10-12 range, and believe me that'd be fantastic, but I don't expect it.

I think that after the losses are taken tomorrow, and lehman announces (ideally) some kind of deal, we will see some buyers/partners step up. People are scared, and if they can clear the air even somewhat that would add value.

However, there is tremendous downside here, and it wouldn't shock me to see a MASSIVE writedown totally beyond analyst expectations. Here's to effective hedging!!

Onebuck I'm sorry, but I straight up do not believe a word that you just posted. Sorry.

Either way I am happy in the knowledge that I will make some money(maybe) and/or learn something about myself and the market (definitely). I'm young enough that the $ amount of the losses are greatly exceeded by what I learn.

I wont even begin to say I know how to value lehman. Financials are hard enough to value when times are good and there is less uncertainty. Sometimes their business model is not as transparent as it should be and unless your really plugged in with whats going on.... aka you can speak with the CFO or one of the big analysts. When times are bad financials get a little more tricky to value because you are fighting theory and reality.

Lets look at the facts (or near facts)

Financial markets do not behave rationally. Human beings are not robots, they can only stomach so much of a loss before they throw the towel in. Lehman is under a lot of speculative pressure right now. Lot of short term speculation is driving this thing lower. Its on every active trader's radar.

Transparency/uncertainty are difficult to model. At best you can get some sort of theoretical value based on some assumptions. The problem is these assumptions are often unreasonable. Transparency is what creates a lot of problem with this. No one truly knows what is going on in the inside. There is a lot of speculation (maybe its true maybe its not), and with this speculation can create a self fulfilling prophecy driving the stock price lower as people capitulate, sell driving the price lower, which creates more rumors and more selling pressure.

Personally I really wouldnt hold this overnight and would only try and trade it. Even trading it i would be very cautious. I dont feel like I have any sort of edge and I am competing against the big boys with better information I give it a pass for now unless there are clear points where it becomes overbought/oversold with a solid reward to risk ratio.

I agree with trade4size's comments. Holding overnight was not my original plan, but with the rumors of an early announcement I decided to roll the dice. So far I was correct, and I'd like to think that the early announcement will have shorts running scared. Clearly we are going to gap up/down significantly in the morning, I won't even pretend I can guess which way. Up would be nice.

Either I'm going to Jamaica, or I'm eating noodles for a while.

If I had to speculate on which way it would gap it would probably be to the upside. My reason is that lehman obviously decided to step in and try and stop the bleeding. This tends to work for a little while which will create the gap, but ultimately the market will go whichever way it pleases.

I think the most interesting play on LEH right is is its options. I really like selling vol here. Selling the Sept 5 put @ .90 Low My thought process behind it is this.

Your breakeven @ expiry is 4.10. Assuming you get assigned and its trading at $4. Your are long the stock from $4. Your collecting 23% return on options that expire in 10 days assuming the stock stays above $5. From its current price of 7.79 that would be a decline of 48%. The implied volatility right now for that option is 495%.

Worst case scenario your long the stock from $4. Its not going to zero so cap your downside to $1. $3 risk to make .92 in 10 days. Thats 30% return. Stock can decline by 35% and your going to make that that 30%.

THIS IS NOT A TRADE SOLITICATION OF ANY TYPE.

my take: buy-out at a mid single digit price/share.

they can't sell the AM division. a firesale of that gives them like 4.5 billion, which is barely enough for them to meet the required tier 1 capital ratio. but selling that makes leh more risky and could lead to credit downgrades, which leh doesnt want. it will make ongoing operation pain in the ass.

so what do they do to raise capital? ML analyst suggested issue more equity (report published on monday). but after the stock fell 40+% today, i doubt many investors would want to buy lehman's equity.

I sent this post round the Derivatives desk. They said it'd be an interesting trade, and we saw lots of puts sold when LEH fell below $8 as clients thought AM alone was worth more than that. 2 concerns now though - being naked short puts is clearly dangerous right now from a mk2mkt perspective given the noise surrounding LEH, and you're also short gamma, so if you delta-hedge you're forced to buy stock as it goes higher and sell as it goes lower... thus instead of being outright short puts, it may be better to sell puts against a short stock position, so you're covering your short at put strike- option premium. As many have said here, I think chance of upside beats downside now for LEH - surely they must have nothing or little to hide in accelerating their results to 0730 today? Secondly there still seems to be plenty of decent investors still looking into buying a stake. If the short interest is ~10% of the free float right now, if results this morning aren't as horrific as expected we should see a short squeeze. BUY LEH!

===
23yr old Associate

I expect a short-lived rally following today's announcement, as a result of whatever lies management decides to spew this time... when the lies become uncovered, the stock will tank again. buy now, short in half a week - sure way to make money.

Dick ain't saying nothing impressive! Lehman just lost more than all 30% of the pre-market gain that it had, to hit pre-market levels of new 52 week lows! YAaaay!!

"short in half a week, sure way to make money" - b2, please do that and tell me how you do. 2 week's from now lets see how much money you make or lose.

im a buyer as of this morning.

it appears that we have a lehman ex-summer intern on the boards... sorry that your employment will fall through after this sub-par bank fails!

blinded by loyalty... almost romantic!

Vol coming in on the LEH Sep 5 put 495 down to 380. Im a seller of vol to around 150. Selling the 7.50

Found another trade. Short Leh Sep 7.50 Call Long Leh Sep 10 call. Good Credit spread and your protected if it rips to the upside. Collect a .75 credit there and you can keep the short 5 put on. Im ok with a naked put when the stock is this cheap but im never really ok with a naked call.

you mean a credit of 0.85?? The spread is 1.45 - 0.6 = 0.85

you sell on the bid and buy on the offer..... If I could get it for .85 that would be great too.

...some of the wisdom around here is hilarious. Selling puts on Lehman? Are you fukking crazy? I actually trade at a large hedge fund and if i had that trade on I wouldnt sleep for a moment until it was off. Even if you end up making money it is a stupid idea...I honestly have not met one, good professional buy-side trader who would even consider blindly selling puts on a company that could easily go to 0 in the next 2 days. This idea is no smarter then selling puts on Bear Stearns on 3/15 or Fannie and Freddie last week. Just b/c vol is rich dosent mean u should sell it...in fact I would say that when we are in the middle of several financial debacles occuring simultaneously it is better to put away the short-vol game for a couple of months in order to avoid blowing up.

First of all this is not wisdom, this is just one of my wise ass trades that I have conviction on. I put a disclaimer at the end saying Im not recommending someone do this trade.

Second, I didnt say play it for size. But I think vol is totally a totally assanine level because everyone panicked. I am comfortable if I am assigned stock @ $5. I respect your opinion I just do not think we are going to blow up by expiration.

"it appears that we have a lehman ex-summer intern on the boards... sorry that your employment will fall through after this sub-par bank fails!

blinded by loyalty... almost romantic!"

b2, stop making stupid assumptions you know nothing about. getting an offer as an intern does not mean i intend to return full time which is besides the point.

in a week or so I'll come back and quote how much you made or lost shorting lehman's stock because you must be doing so yourself given your confidence that the firm will fail

as a retard that spends all his time making useless forums on prestige differences between banks, you must have had to blow a few MD's to get into whatever firm you worked for (if you even have a job)

Hope you're not in for too much of a surprise when you find out who is on the other side of your trade...

Collect your nickel and dimes but remember one blowup and you're out

oh, little 12 year old kids... so amusing. getting so worked up over a message board... go get a life please - maybe you and joefish can engage in a nice sausage exchange festival, given how this msg board tends to dictate 90% of both of your emotions!

(and also given how you're both so dumb!)

who were paying attention, I got the pop I was looking for, though it didnt really last. When I woke up I saw that it was up to about 10.5 in german trading, pre announcement. I put my order in then, and by the time I got to work it had gone back down and then back up again. Clearly I am happy that I got out of it as I did (about even).

Things have been wild this week, who knows what the weekend has in store.

its nice that the b2/kingbling fight extends to multiple threads

b2. i know your crying every night before you sleep thinking of new posts to make yourself seem prestigious
such a joke

How are those short puts looking?

lol

I didnt do the trade, I said it was interesting. The options did come in the next day to .60 from .90.

Hey kingbling: I win, F*cker. Oh, wait... that's right, I can't gloat- you've been too ashamed to show your face on this board since Lehman tanked. :-)

b2. what do you mean you win? you dont win anything. your original quote midway through the week was to short after half a week, which would have netted 0 profit.
im surprised by lehman tanking instead of getting bought, but i dont really care if it tanks or not

you've been talking up Merrill's prestige on 5 boards and its clear that your opinions are useless. i'm not the one saying Lehman is top notch; im just saying your fuckin retarded

jajajajajajaa... u got PWND! keep trying to talk your way out of it, moron! pwwwwwwngeeeee gg nore kthx.

btw, go read when I made my comment, retard... Wednesday, pre-market. give it 3 trading days, short on friday, I come back with a billionage percente return!!!!!

gg, go unemployment line ftl!!

jajajaja!!!

what the fuck?