Lehman Brothers, going down?

Lehman Brothers is having a hard time raising capital. Could this be another bail out or maybe a big calamity? How much of the banking industry will it take with it?

Is anyone worried? I have to say it’s been something! To look at the state of our US economy and wonder if we’re in just another normal down part of a cycle, or if we’re on our way down period. We cannot raise capital, we cannot produce products, we seem to be losing our edge. Is it just a bad case of poor financials or is America really losing it’s edge? Are we going to be second to China and Russia? Hate to wonder, I really do, but we’re looking like we ate the monkey and drank the cool aide. Any thoughts? What can we do to maintain our superiority in the world of finance?

Mod Note (Andy): Throwback Thursday - this post originally went up 9/9/2008

 

....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.

------------ I'm making it up as I go along.
 
fakerz:
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.

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

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

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.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

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.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
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.

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

=== 23yr old Associate
 
trade4size:
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.

How are those short puts looking?

 

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 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.

 

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.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

...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.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

"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)

 

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.

 

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

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

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!!!

 

Ahahah nice job Andy.

Should we make a comparison to the DB thread?

Is DB going down? Answers: -no it's not. -they'll be fine, just a couple of issues - xyz will never allow it!

The best answer remains ''what the fuck'' a few days later.

Never discuss with idiots, first they drag you at their level, then they beat you with experience.
 

Fed discount window= Lots of liquidity. Lehman wont fall BECAUSE Bear Stearns fell. When Bear Stearns was going on some people might have thought it was all fun and games, but now everyone realizes how intertwined the fate of the World's banks, and the financial system in general, are. Wheareas banks, hfs, and others rushed to save their own money and stopped trading with Bear as soon as rumors started circulating about its poor liquidity position, people will go out of the way to keep Lehman afloat...NO ONE (except of course the HF managers with shorts out) wants to see Lehman follow Bear.

Lehman will not fail...UNLESS...Freddie or Fannie fail or have to be bailed out first. At that point all bets are probably off and i'm going to hide under my bed.

 

Fannie and Freddie are not going to fail and will likely not need a bailout from the Feds. Freddie and Fannie have bad balance sheets, but neither institution has taken on subprime debt in any material capacity and it's literally pure accounting. Liquidity isn't the problem--it's the valuation of all assets versus all liabiities. The only way (and this is conceivable, but not extremely likely) that Fannie or Freddie collapse is if the housing market has another precipitous decline (e.g. we're already down 11 percent, if the total market losses of national home prices continue to 20 or 25 percent, then all bets are off).

Here's basically how it works--if the market collapses in said example amount, then a certain amount of liquidity will need to be raised. If the regulator believes sufficient debt hasn't or can't be raised, then they will take over. So far, raising debt still isn't a problem. But as I said, if total market losses approach 25 percent, then neither GSE may be able to raise the debt necessary to sate the regulator. However, it is VERY UNLIKELY that such a scenario would play out, but not totally out of the question.

Array
 

Young monkey inquiring here - Virginia Tech, your speculation makes a lot of sense, but I just wanted to know how you come to these conclusions. I'm assuming you've looked at FNM's and FRE's balance sheets, but apart from that what other sources of information and analysis do you use to determine at what level the two GSE's can survive until etc?

 

That's a good question. I started at Freddie Mac/Fannie Mae (if you really care which one you can probably search me) about a month ago, so I know a lot of people who have worked at these respective organizations for 2,3,5,10 years, etc., have asked a lot of questions, and have been forced to learn the business. It comes from speculation--not insider trading or any illegal information or propriertary or non-public information--from VPs, analysts, etc. at these companies. A lot of the media reports are a lot of speculative hyperbole, but if you read the commonsense, no-nonsense reports, you'll see that the issue is an accounting issue. There is also a lot of debate about the implementation of an accounting rule, and it has started to come to light (whether or not it will materialize into anything or not is another question) that the GSEs mis-reported balance sheet information based on the actual rules, and are therefore in a STRONGER position than they have been reporting.

My best guess of which I am very confident about is that neither GSE will collapse (in the short- or medium-term), and neither will need to be bailed out. However, a collapse is within a reasonable probability (5%) in the medium- and short-term. In the unlikely event that this occurs, I am very confident (90%+) that the bail out will be an influx in liquidity and not a takeover.

Array
 

Well, honestly, 20 percent isn't completely and utterly out of the question. I've heard some genuine concern by people in the know at these GSEs who think it's possible (my mortage broker friends, however, see a recovery of sorts by 2009). The point is, even if we get to 20 and 25 percent declines, so long as these organizations can raise sufficient equity and debt capital, the regulator will let them operate. But the real question is, if these declines occur, CAN they raise the money? Right now, no problem really at all--it's a little more expensive, but not that difficult. That's why all the freaking out about immiment collapse is misguided. However, in the long-term (18 months plus), God only knows.

If I had to guess, no, we won't see 20 percent declines. But that's with almost no level of certainty (e.g. 60%).

Array
 

lol this is a pointless discussion none of us know whether fannie, freddie, lehman will fail

untitled... u know that lehman barely even trades with Platts. the next day lehman bought 1 contract to show it can still trade with them

u'll only need to wait a few days or weeks to see if the firms fail or if everything blows over

 

Umm, I'm talking about a collapse of the companies. I don't want to sound like a jerk, but here's my quote: "It's going to take longer for Freddie/Fannie to see if there will be failure or if things will blow over." Not sure how your reading comprehension is, but it's clearly failed in this instance. We won't know about failure or not for many months or even a year or two. This is kind of old news--they were talking about doing this exact thing on Friday--this isn't even remotely a surprise for those who have been reading about this. If you read the article it actually says "if needed." Again, there is no collapse nor is there any indicator of long-term success.

Array
 

virginia, stop misconstruing quotes. i did not in any way say the two were going to collapse. all im stating is that I disagree with the fact that you think its gonna take a longer than a few weeks for any failure or no failure to occur. im saying that the fed willing to bail out Fannie/Freddie is a signal that the two firms are probably NOT going to collapse. However, it is not taking longer, its happening as of right now. latter results of whether this plan will succeed or not is unknown, but that wasnt my point.

but then again, you are the insider considering you work at one of the two.

 

I think the niche dealer model might become more popular. A lot of bankers (perhaps with some obvious bias) believe that the big banks no longer have much to offer. It's not as necessary that a bank be a one stop shop now. Ideally clients can choose the best financing house and the best adviser, separately. But then I think that may be what people usually say in a market downturn. Let's see where things go from here.

 
Alphaholic:
I think the niche dealer model might become more popular. A lot of bankers (perhaps with some obvious bias) believe that the big banks no longer have much to offer. It's not as necessary that a bank be a one stop shop now. Ideally clients can choose the best financing house and the best adviser, separately. But then I think that may be what people usually say in a market downturn. Let's see where things go from here.

Not sure I get the point in the context of Lehman... do you mean people will want to diversify counterparty risk by having a whole bunch of little firms? So they won't be exposed to big bank failures? Or that smaller shops can provide better, non-conflicted advice along with execution equal to or better than big shops? I'm not sure a Lehman bankruptcy is necessary going to create a surge of interest in niche broker/dealers - they aren't any safer or better than they were before Lehman went bust (assuming LEH is in fact toast). If anything, that business will migrate to Goldman. Let me know if I'm off point here.

 
Alphaholic:
I think the niche dealer model might become more popular. A lot of bankers (perhaps with some obvious bias) believe that the big banks no longer have much to offer. It's not as necessary that a bank be a one stop shop now. Ideally clients can choose the best financing house and the best adviser, separately. But then I think that may be what people usually say in a market downturn. Let's see where things go from here.

By "big banks" do you mean Citi, BofA, etc or GS, MS? Because it seems to me like banks with big balance sheets have the most to offer in this climate, at least in terms of counter party risk. The independent broker/dealer model is the one that is going bust...first Bear, then Lehman and ML. Niche dealers are fine as long as their niche is fine, but without diversification they could end up in a bad place.

 

[quote=mwgr5]DealBook has a copy of a letter sent from an unnamed LEH exec to his employees. http://dealbook.blogs.nytimes.com/2008/09/14/letter-from-a-parting-lehm…

www.sharpeinvesting.com[/quote]

This makes no sense. Dealbook says he's "departing" - does that mean leaving for another firm? Or just that he'll be out on the street when Lehman goes under? And he tells a story about a guy who got injured and kept playing and led the team to more victories. How does the analogy apply to anything? This is not a finger injury. Lehman's lying on the ground with both arms and legs cut off. No one's going to lead team Lehman to the playoffs next year. It's over.

 

They do not necessarily get anything. They will most likely get nothing, if they even get to keep benefits which is doubtful. In order to get severance they would need to get it approved by the court which would be unlikely in this case. On a similar note, I heard MER is not giving out S&T bonuses this year, can anyone confirm that?

 

I'm going to speculate.

I think Barclays will bring over the IBD kids and Equities kids, because 1) it does not have a traditional M&A and coverage IBD or Equities presence and its NYC summer analyst class is rather small and 2) this especially for IBD, 2nd years will be preparing to leave next summer, and the bank will have no choice but to replenish its ranks.

As for kids in FI, I'm not sure what to say...again I'm speculating but I feel IBD especially can hope.

However, in the mean time, you should definitely go through recruitment (even though its absolute horse shit right now)

 

So waaay too early to speculate. Meaning you should be actively looking for a job.

The order in which things will be dealt with, I suspect, will be as follows:

  1. Top, must-keep senior guys
  2. Team members of the guys in #1
  3. Other worthwhile senior guys and their team

Once the above have been decided, then they have to decide what to do about current Barclay's bankers that overlap. Only after these steps have been taken and an examination of the markets at that time would it be prudent to make decisions on further staffing needs.

1,2,3 will happen very quickly to avert defections, but figuring out overlap and staffing needs will take more time. I wouldn't expect an answer any time soon. And remember, even if they say "you'll have a job", things can change quickly so try to find something more concrete in the meantime.

 

Tomorrow's Thursday...

(:-p)

"You stop being an asshole when it sucks to be you." -IlliniProgrammer "Your grammar made me wish I'd been aborted." -happypantsmcgee
 

C+ movie. But worth watching since the topic interests you.

I just remember something along the lines of

John Mack: "Do you know how to price a CDO?" Jamie: "No. But I know a guy who does." John: "Tsk. (shakes head)" Lloyd: "No, you know a guy who'll go triple-A on your ass for floor seats at the Knicks!"

 

It's not high quality, but if you're interested in finance then you'll enjoy it. I compare it to watching the World Cup. If you like soccer, if you've played soccer, then you're more likely to enjoy watching a game on TV. If not, you'll probably get kind of bored. There is an interesting explanation of mortgages and CDO's given by a hick Tennessee girl that is entertaining. If you're on WSO then you're the kind of person who will find it interesting. HBO signed on to make a movie about Andrew Ross Sorkin's Too Big to Fail book that I'm lookin forward to.

 

google project tv. they have it. i thought it was pretty terrible. but its teaches you i guess

"Look, you're my best friend, so don't take this the wrong way. In twenty years, if you're still livin' here, comin' over to my house to watch the Patriots games, still workin' construction, I'll fuckin' kill you. That's not a threat, that's a fact.
 

At the time I was in high school - didn't care.

Now I'm working at a firm with a bunch of ex-Lehman people. Love their stories about 100%-150% analyst bonuses and SA black cab privileges. Some of the ex-Lehman senior guys seem to have been "humbled" - aka they realize Wall Street is not invincible and they themselves are not infallible.

 

I was a year into working in BB BO. The BB was one of the firms that came close to collapsing. Lehman went under and at first I was just thinking, "great, more annoying work to manage." Lehman trades didn't just cause issues for traders, but all that sh*t hits everyone down stream. I worked with OTC derivatives and no one (FO, MO, BO) really had a clue on how CDS actually worked when you have 30 simultaneous credit events. Plus all these dumb CDX and custom basket trades. Total mess.

Then my firm started going down and we didn't know if we were going to have a job, or be bought out or what. I actually had off a few days and told my colleagues to let me know if I needed to come in to collect my stuff.

I stayed several more years mostly cause I couldn't find a new job. Having an inside look was interesting though, seeing how a bank reacts to risk and all these new processes we had to implement to cover exposure.

 
mojo12:

The BB was one of the firms that came close to collapsing.

Well gee, that really narrows it down. I guess you weren't working at JPM, but that's about it. Lehman was going to take down Merrill, Merrill was going to take down Morgan Stanley and Citi; then just about every financial institution on the planet was next, including GS, once Citi crashed. I wonder if someone still has a copy of Fuld's town hall video where he claimed Lehman's capital position and cash on the balance sheet had never been stronger ca. July 20th-September 1 2008.
 

Changed a lot of perceptions on the Street & was such a sad outcome for most of the employees there. Knew a senior trader in their Tokyo office who was absorbed into Nomura after the Japanese bank acquired their Asian ops (huge culture change for him). Knew an energy group banker in NY who lost all his money vested in the firm, had to sell his NYC condo & relocate to DC for new advisory role. My previous firm took on a NY equity sales guy who was very good at his role. You just never know what will happen out there...

All the world's indeed a stage, And we are merely players, Performers and portrayers, Each another's audience, Outside the gilded cage - Limelight (1981)
 

Was a Sophmore in College, I cared but I didn't understand what a lasting impact it would have especially when I tried to break into the industry.

Give me a kid whose smart, poor, and hungry...............
 

Was watching it in one of the student lounges at my undergrad, and I recall someone throwing his hands up in the air and announce, "That's it! I'm transferring to liberal arts!"

Metal. Music. Life. www.headofmetal.com
 
In The Flesh:

Was watching it in one of the student lounges at my undergrad, and I recall someone throwing his hands up in the air and announce, "That's it! I'm transferring to liberal arts!"

We wanted to throw a mannakin off the top of the building and have it land 20 feet in front of the CNBC truck.

I would have been arrested and probably lost my job in a lousy economy, but in retrospect, it still might have been worth it.

 

Blows me away...

...we age so damn fast, it is scary. The Challenger shuttle disaster shook me up. I was still in university, but it was weird how it impacted everyone. The crash in '88 really blew every one out of the water....everyone who worked on wall street. I had been doing private placement road shows in and around WTC five months before 9/11 (how many of you were working there when that happened?). When it happened, I was in Europe passing some bar with it on TV. Thought it was a movie.

I don't know if you ever develop a sixth sense, but a lot of people saw the 2008 crash coming. Lehman was nasty for those who were there,but its aftermath (public reaction, regulation, taxes, media generated fear) really screwed things up. But you could have made a killing if you hadn't bought into it all.

The lesson is, I believe, that dramatic changes in the world will happen many times within your lifetime. If you are half intelligent and trust your instincts to the core more than following the herd, you can get by. And maybe make some serious cash. Remember the DOW at 6k in 2008 after Lehman? Where was it 11 months later?

 

After the Lehman BK, I saw a crash coming in those two weeks prior. Called my parents; called my friends; told them to pull their money out of the market. I sold off some of my holdings.

Before the Lehman BK, I saw a serious recession coming- maybe not as bad as 1980-1983 but probably worse than the dot com bust.

I was too conservative getting back in. I wanted to have eight months of emergency savings, which back then was $22,000, and I only had the assets of a ridiculously frugal analyst who had worked for one year and gotten one bonus check. It was a lot, but not as much as you'd think net of tax.

We really thought we were heading for the great depression by November. By March, as some of the prices ticked lower, we had a sense it wasn't going to be as bad but something was screwed up with the markets. So I bought everything I could, without employing margin, and without dipping below the amount of savings I needed to have in case I lost my job.

I still hold some of the stock I bought back then. It's hilarious looking at a $40 stock paying $2/year in dividends and seeing a $10 cost basis.

I wish with 20/20 hindsight that I had bought more, but I didn't know that things would recover.

 

People who say this (in my opinion) clearly don't understand or haven't thought through the implications. Plus in some cases (eg AIG) the government literally made billions of dollars in addition to the repayment of their initial "bail-out" (typed that way because AIG ended up as a great investment)...

 

4 words late 80's saloman brothers. they fired the analyst and junior associates, whose combined salary can pale in comparison to a lazy md. the worst is yet to come

Reality hits you hard, bro...
 

i'm working in Lehman's PE office in Dallas. Apparently experiencing rapid growth, especially since they diversified a lot into distressed debt (about 30% of portfolio). I know nothing's immune to cutbacks but would the situation in the regional offices be more fragile?

 

Yeah distressed debt is the hot thing for 2008 which should survive cutbacks more. But you can't be too complacent of anything obviously. Like I put in the other thread, just make yourself utterly unfireable and irreplaceable. This is very easy to do - do little things like creating products, spreadsheets, calendars which other people in your team find very useful. Be the first one in, full of energy. Be the first person to identify rumours, gossip, news, analyse the outcome and blast it out to your floor on the hoot. Show you've got the initiative to come up with new ideas. Be passionate, emphatic, loud.

 

I'm not sure where you're getting your info from. Lehman is not going to be screwed. Sounds like the voice of someone very bitter to me.

Although Lehman's position may be negative, their risk management is actually quite impressive relative to the rest of the street. They are a pretty conservative bank with good management. That's my honest opinion. I'm not sure if I'm feeling the gloom and doom the rest of the board is foreseeing.

As for the layoffs, from the grapevine, I can definitely confirm the layoffs of analysts (the majority were 2nd years who were lateral hires). Not sure where people were getting the 20% 1st year analyst numbers from. I will check again with my buddies over there. Should be more worried about the 40 1st year analysts at CS that just got the axe.

 

Hi HerSerendipity, are you talking about 80% in IBD? or is it just the subprime related departments? I am starting FT at another BB and so far I have not yet heard of any massive layoffs in the IBD.

 

Let's say the situation does get terrible at Lehman:

-How will SAs be affected? -Is it outlandish to think SA offers could be revoked? -Let's say, worst case scenario, that something does happen to Lehman SA offers; what kind of recourse would an SA have? Esp. if other offers were rejected to take the now-jeopardized SA offer?

I guess this could go for all Lehman SAs though my offer is for Capital Markets, if that sways anyone's answers or guesses.

 
meehgs:
-Let's say, worst case scenario, that something does happen to Lehman SA offers; what kind of recourse would an SA have? Esp. if other offers were rejected to take the now-jeopardized SA offer?

I don't think any. Read your offer letter, but I am sure there is something protecting Lehmans ass in this situation.

 
meehgs:
Let's say the situation does get terrible at Lehman:

-How will SAs be affected? -Is it outlandish to think SA offers could be revoked? -Let's say, worst case scenario, that something does happen to Lehman SA offers; what kind of recourse would an SA have? Esp. if other offers were rejected to take the now-jeopardized SA offer?

I guess this could go for all Lehman SAs though my offer is for Capital Markets, if that sways anyone's answers or guesses.

You have no recourse against LEH should they decide to pull offers. It's at-will employment and that's one of the risks of the business. You could have interned w/ the Big 4 if you were that worried about the market. No offense intended at all, but you made that risk / reward tradeoff.

 

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