Since Lehman Brothers Holdings Inc. (NYSE: LEH) filed for bankruptcy this morning, it means that its assets will be sold and the proceeds will go first to lenders and bondholders. If there's anything left after paying them off, it goes to the preferred shareholders. Finally, the common shareholders get the leftovers of the preferred shareholders.
This bankruptcy is the biggest in history as measured by its $639 billion in assets -- over six times bigger than the former champ, WorldCom. The bankruptcy does not include all Lehman's assets. "The Chapter 11 filing did not include Lehman's broker-dealer operations and other units, such as asset management firm Neuberger Berman. Those businesses will continue to operate, although Lehman is expected to liquidate them. It said it is in advanced talks on selling its investment management division," according to Reuters.
Many big institutions will be first in line for the proceeds of these asset sales. "Its biggest unsecured creditors are Citigroup Inc. (NYSE: C), Bank of New York Mellon Corp (NYSE: BK), Aozora Bank, and Mizuho Financial Group Inc.. Citi and Bank of New York Mellon are trustees for Lehman bonds. As of May 31, it owed about $110.5 billion on account of senior unsecured notes, about $12.6 billion on account of subordinated unsecured notes and about $5 billion on account of junior subordinated notes."
If you own common shares, you are likely to be left with next to nothing -- Lehman shares will continue trading most likely in the pennies a share range. Bloomberg News reports that the senior unsecured creditors could receive between 60 and 80 cents on the dollar. Aozora holds a $463 million bank loan and is probably in line ahead of everyone else for the proceeds.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
9-15-2008 @ 1:32PM
rawdawg said...
Its not rocket science, all Obama has to do is show how Mccain is not the Common man, especially if he can connect his historical economic views to the failing housing market. Palin and waffles and lipstick
is a distraction because McCain has little substance
9-24-2008 @ 1:00AM
kilroy said...
Obama has no substance! He is the Democratic nominee because he is part black, very liberal, a good speaker although clueless about the facts, and whites aren't scared of him like they are of Jessie Jackson and Al Sharpton.
John McCain's whole life is one of character!
Obummer's life is one of entitlement.
9-15-2008 @ 7:54PM
Tom Williams said...
After listening to the interview on Maria's special this evening, I have one observation.
Is there anyone in the political arena more inept, uninformed, and unqualified than Nancy Pelosi?
She is an embarassment to not only the Democratic Party, but to all US Citizens!
9-16-2008 @ 4:27AM
Hanstaruna said...
I think this is why stock investment is very risky. Stock investors get the last piece of the cake after lenders and bondholders get theirs.
Hanstaruna
http://hanstaruna.blogspot.com
9-16-2008 @ 10:33AM
vidcrayzee said...
George Bush has something humorous to say about Lehman’s woes. Check out the video here, http://beema.wordpress.com/2008/09/16/beema-news-2/. If you can’t laugh you will most definitely cry about all of this.
9-16-2008 @ 11:24AM
reddog said...
i CANNOT BELIEVE THAT THE rEPUBS HAVE NOT GONE AFTER THIS FRAUD AS AN "EMPTY SUIT". HE'S GOT NO EXPERIENCE
10-07-2008 @ 4:40PM
ATHELSTAN said...
THE TIME HAS COME FOR ECONOMISTS, POLITICIANS, AND BUSINESS PEOPLE TO BECOME ACCUSTOMED TO USING THE "D" WORD WHEN DESCRIBING THE ECONOMY.PAULSON AND BERNANKE ARE WEAK, VACILLATING, UNIMAGINATIVE, AND TOTALLY CLUELESS AS TO WHAT TO DO TO PREVENT THE NEXT "D****SS**N FROM OCCURRING. LIKE 1928-29, REPUBLICONVICTS ARE SAYING TO ONE ANOTHER AND TO THE NATION, "PROSPERITY IS JUST AROUND THE CORNER", "THE ECONOMY IS BASICALLY SOUND" AND THERE WILL BE "A CHICKEN IN EVERY POT AND A CAR IN EVERY GARAGE". REMEMBER THAT SAGE ADVICE FROM THE REPUBLICONARTISTS AND THEIR ALLIES IN FINANCIAL SERVICE INDUSTRIES AND REAL ESTATE WHEN YOU STEP INTO THE VOTING BOOTH ON NOV. 4.