My opinion about the rumor "Major Investment Bank go bankruptcy"

It is said by Thomason Financial and Dealbreak.com that a major investment bank is filing Chapter 11 bankruptcy protection. It may not bee completely true, since this kind or filing cannot be hidden by anyone, even by regulators themselves. However, it is possible that a major investment bank is in grave troubl, on the edge of bankruptcy protection, or is seriously considering filing bankruptcy.

The question is who the mysterious investment bank is? The most wanted one is Bear Stearns, however, its problems are mainly in hedge funds, not its proprietary trading desks. Furthermore, CITIC Bank from China is about to by a big stake in Bear, which can support it through this crisis. I personally believe that Bear is not on the edge of bankruptcy.

Another candidate is HSBC, since it has a lot of MBS in house. However, HSBC is too big and it is bidding for a Korean bank. How can it bid for Korean Exchange Bank if it is filing bankruptcy? That is why I do not believe it is HSBC.

The most dangerous candidate is perhaps Lehman Brothers. Lehman has the strongest Mortgage-related prop trading desk of the world, and we do not yet know the details about its prop trading loss. It has closed its whole subprime related business, which could be a sign. I think Lehman is the bank in rumor.

However, some European players like DB, Barcap or BNP are also potential candidates, but none of them has a strong enough mortgage prop trading business. The next week is maybe the toughest for Lehman, and I hope it could survive.

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Comments (26)

Aug 23, 2007 - 9:24am

will not go bankcrupt b/c of prop losses alone. Through Aurora Loans, they hold 60-80bn in mostly Alt-A loans on their balance sheet. Depending on mkts, those are down 5-15%, good luck marking that on your books, obviously they have hedged some of that risk away, but who knows how much, and most definitely not all of it. They also have ~$25bn in loan/bridge exposure that will likely get put on their books, mark those down 4-10 pts in the coming months. And then any prop losses on top of that. They shut down their subprime bus yesterday. The Leh in trouble rumor has been in the market for almost a month now, do to Aurora. If they are going under, it will likely not be a huge surprise to Leh execs, who naturally would have brought the Fed and other banks in by now to talk through scenarios and no their exposure

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Sep 1, 2021 - 1:50pm

jfc this thread was a blast from the past - looks like it took place as I was entering senior year of high school

Hear me now, children, for my occupation is of much import. For 82 years I have been an oil man, a ‘baron’ some have called me. Now what does an oil baron do? The answer - crush your enemies! Grind their bones into dirt! Make them regret that they were ever born! Oil is not for the weak - it is the Earth’s milk, and only the strong may suckle at Mother’s teat!

Aug 23, 2007 - 2:25pm

sources right now, just rumors. Unless you talked to Dick Fuld or someone on the management committee, I would chalk it up to a rumor which has been out there for a while. That doesn't prevent us from speculating, and looking at their current business and positions, and observing that they probably will have a bad quarter, but how bad is questionable.

Aug 23, 2007 - 3:21pm

No major ibank is going bankrupt. Do any of you know anything about bankruptcy and what it exactly means? While banks are taking hits to earnings because of their losses on hung deals, a bankruptcy would require either a lack of liquidity (funding) or a default that is triggered by tripping covenants. No investment bank is anywhere near that happening.

Aug 23, 2007 - 3:39pm

correct, the chances of a bank becoming insolvent are very small, but it doesn't mean that a few of the banks cannot/willnot take major hits to their balance sheet in the coming months; also, given how fast we have seen liquidity dry up in the mortgage space and credit space in general, with effectively no bid for highly rated CP, I wouldn't be arguing that liquidity shouldn't be a concern for every financial institution in general (large, commercial banks included). Who would have said a couple of months ago that it was even remotely possible for a company such as Coutrywide to have rumors about potential bankcrupcy? Also, no bank, especially i-banks like Lehman, will sit there and watch their stock drop 70% and limp on, they would sell themselves or find a capital partner first (such as Bear Stearns rumors suggest)

Sep 1, 2021 - 12:39pm

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