Goldman Sachs (NYSE:GS) has been the premier investment bank in the world for decades. It has been the leader in underwriting fees, M&A, and proprietary trading profits for longer than many bankers can remember. It has also sent senior executive from the company to work in the highest level jobs in Washington.
But, the firm is not immune to the credit crisis. It earnings have been hurt, although less than those of most other financial firms. So, it comes as some surprise that it will cut 10% of its 32,000 person workforce. According toThe Wall Street Journal. "The cuts, expected throughout the New York-based company, underscore how much even the mightiest securities firms have been shaken by the 16-month credit crisis."
The news may be bad for Goldman but it is awful for almost every one of the company's competitors, most of which are doing much worse than Goldman is. Some corporation in the industry have already lost people. especially Bear Stearns and Lehman. But, the cutting may have only just begun elsewhere. Several analysts recently put out reports saying Citigroup (NYSE:C) may not make money for over a year.
There had been some hope that the Paulson rescue would improve financials at big banks by enough so that they would not have to take drastic measures, but the capital may not be enough if mortgage markets get worse. If Goldman can cut over 3,000 people, its competitors are probably looking at much larger numbers. There are tens of thousand of Wall St. jobs at risk.
Douglas A. McIntyre is an editor at 247wallst.com.
The Securities and Exchange Commission, or NAMBLA for short, is focusing its resources on an investigation of whether gossiping short sellers hastened the collapses of Lehman and Bear Stearns by spreading rumors.
The SEC is looking into a variety of rumors that spread in the days and months before the companies collapsed, including suggestions that some counter-parties had stopped trading with the firms.
Let's just say they did spread the rumors, which I don't believe they did (and, as an aside: if a company can be brought down by the corporate equivalent of 7th grade girls passing notes in class, perhaps it doesn't deserve to be in existence anyway).
It's a shame that the SEC is tossing its very limited resources into wild goose chases that serve to intimidate the people who were smart enough to predict trouble at companies like Bear and Lehman, long before either company was giving investors the full story.
In the end, the short sellers were proven right because Lehman was insolvent, and a buyer couldn't even be found at $1. You can only blame the company's management for creating that mess.
With Lehman Bros. in the midst of winding up what's left of its operations following its bankruptcy filing, chairman and CEO Richard Fuld has been kicked out of the corner office at Lehman's Manhattan headquarters -- and sent packing to to a 41st floor office at 1271 6th Avenue.
Lehman's building at 745 7th Avenue is now the headquarters for Barclays' investment banking operations. It has no use for Mr. Fuld. With a flair for drama, The Wall Street Journalsums it up (subscription required) this way: "Napoleon cooled his heels on Elba. The Dalai Lama lives in Dharamsala, India. And Lehman Brothers Holdings Chairman and CEO Richard Fuld Jr. will be banished to 1271 Sixth Ave."
Meanwhile former CFO Erin Callan -- who was pushed out as a sacrificial lamb back in July -- gave her first post-Lehman interview to Fortune, telling the reporter that Mr. Fuld had been brought to tears by the difficulties the company was facing.
If you're in the market for $15 million worth of Fuld's modern art collection, Christie's has got you covered.
In the wake of the collapse and bankruptcy of Lehman Br Holdings (OTC: LEHMQ), chairman and CEO Dick Fuld and his wife Kathy have begun selling off their prized collection of modern art. The couple has been consigning parts of their collection to Christie's, the renowned auction house. 16 post-war drawings have been consigned with a pre-sale estimate of $15-$20 million. At its peak, Fuld's stake in Lehman was worth just under $1 billion, but those shares are now virtually worthless.
What does all this have to do with Lehman, the proposed bailout of the banking industry, and the economy? Nothing really. But at least it's now clear that the insiders will be suffering alongside taxpayers and foreclosed homeowners: Fuld has to part with $15 million worth of post-war drawings!
Who's going to buy that art, you ask? Perhaps hedge fund manager David Einhorn, who was one of the few people calling Lehman's bluff a few months ago, will drop a few bucks to redecorate his office.
Late Sunday night it was reported by the Associated Press that the Federal Reserve announced it had approved the request of the two investment banks, Goldman Sachs Group (NYSE: GS) and Morgan Stanley (NYSE: MS), to become commercial banks and to take deposits, bolstering the resources of both institutions.
Since Bear Stearns was acquired in a fire sale by J P.Morgan Chase (NYSE: JPM) in March both firms have been under increased pressure to show their financial strength, but the bankruptcy of Lehman Brothers Holdings (NYSE: LEH) and the buyout of Merrill Lynch (NYSE: MER) by Bank of America (NYSE: BAC) last weekend have changed the playing field too much.
So what does this mean in short? It means the investment banks wanted the comfort and security of mama bear. They wanted the protection of the Federal Reserve, along with the ability to borrow from it at the discount window, and in a worst case scenario, to be bailed out like everyone else.
The Fed, from its perspective, knows this to be true and understands that if the investment banks -- now commercial banks -- can increase their reserves, then maybe a bailout will not be required, which is better for everyone. Along with this change will come additional requirements and regulation.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.
I've put together a good-sized Enron memorabilia collection, inspired by the affordability. I was able to buy an Enron lunch bag on eBay for less than the cost of a similar nonbranded product at Wal-Mart.
The collapses of Lehman Bros. and Bear Stearns aren't anywhere near as interesting but the headlines have attracted a swarm of eBay listings. According to The New York Times, "When a big Wall Street firm goes belly up, one bet you can take to the bank is that memorabilia will be offered for auction on eBay within hours. "
If you're looking to support a charity instead of an opportunist -- or burned employee who, having lost his 401(k) grabbed a stack of mugs on his way out the door -- one seller sold a piece of toast with the initials "BS" and "LB" branded on each side. Proceeds benefit the Children's Diabetes Foundation in Denver. The price? A mere $15.50. A piece of toast that offers the ticker symbols of companies about to collapse would likely be worth far more.
As an investment, I don't think Lehman and Bear memorabilia are compelling: collectibles from the Enron and Worldcom blowups do not appear to have appreciated in value.
With theories flying about the cause of the problems in the financial sector, just about every possibility has been discussed. Unfortunately, the media has given tremendous attention to the "evil short-seller conspiracy" idea but, on his blog, billionaire Mark Cuban offers a more sane alternative: "Risk and reward have been decoupled for CEOs on Wall Street."
Cuban writes: "If you are the CEO of a major public company, once you qualify for your golden parachute there is absolutely no reason not to throw the Hail Mary pass, and do high risk deals every chance you get.... Lets just say for example, you run Fannie May or Freddie Mac. You basically f*** up the entire housing economy. Your punishment ? You walk away with 9mm and 14mm dollars as severance."
Instead of cracking down on short-selling, regulators and especially directors should be looking at the corporate governance issues that led executives at companies like Fannie Mae (NYSE: FNM), Lehman Brothers (NYSE: LEH), and American International Group (NYSE: AIG). One possible solution that is already beginning to take hold at many companies is providing executives with restricted stock grants instead of options so that there is an incentive to retain value rather than betting the farm on growth.
While Cuban's analysis is probably overly simplistic -- the recent mayhem is not only a result of poorly structured CEO pay -- the huge unchecked risks and excessive leverage at so many companies should lead to a renewed call for changes in corporate America.
Historians are likely to look back on this week as one of the most significant in American economic history. This was the week that the government let Lehman Brothers Holdings Inc. (NYSE: LEH) fail -- a record $639 billion bankruptcy, lent $85 billion to keep American International Group (NYSE: AIG) from collapsing, and pumped $300 billion into global financial markets to keep them from seizing up. But that turned out not to be enough to keep the markets afloat -- for that Hank Paulson needed the ultimate bailout.
While I don't remember much of the American History I studied in high school, one thing sticks with me today. It always seems that it takes a major crisis to get America to make big changes. It is never possible for leaders to foresee problems and take action to avert them before they turn catastrophic. The averting catastrophe approach always struck me as far smarter than the crisis approach. However, it seems that lawmakers need tangible evidence of prior bad outcomes to make the case that the status quo is deeply flawed and must change.
While he had already loosened up $800 billion in taxpayer money by Wednesday, Paulson needed an even scarier story to get Washington to agree to an additional $500 billion to create an agency to buy illiquid assets from financial institutions. What exactly did he tell Congress and the president to scare them into agreeing to this plan? AP suggests that he described evidence of the global financial market ceasing to function and painted a frightening picture of the economic and political chaos that would ensue if that functioning ceased for an extended period of time.
It seems like years ago, but it was only Monday when I wrote a post about what Wall Street's meltdown means to the average American. The post generated a slew of additional questions from readers who wanted to know, not just how their investments and the economy would be affected, but also how all aspects of their personal finances would hold up.
Many BloggingStocks writers also heard from readers who wondered what was going to happen to their AIG insurance policy, the Lehman stock they didn't know their broker had bought for them, and their life's savings in their community bank. They asked us if their assets were safe and what they should do next.
To answer these questions and more, we teamed up with AOL Money & Finance on a feature, Financial Meltdown 2008, that offers concise answers to questions you may have about what the current financial mayhem means to different areas of personal finance. It's scary stuff. But, surprisingly, it's not all bad news.
Be sure to check it out and let us know what what we left out and any additional questions you might have.
Now that a mass of mortgage-related write-downs has swamped major financial companies, Wall Street has turned its attention to the second half of the year to see whether the beatings will continue. Early indications are that they will. Both Lehman Brothers (NYSE: LEH) and Washington Mutual (NYSE: WM) have said they will take reserves for several billion in their third quarters.
The bank that has been hit hardest by the crisis may not even be American. Reuters reports thatUBS (NYSE: UBS) will have to write down another $5 billion on its risky investments in the second half of the year according to the Sonntags Zeitung newspaper.
The IMF has predicted that total write-downs driven by the mortgage crisis will hit over $1 trillion. Only about half of that has hit the markets so far. If banks face a tremendous increase in reported losses, most will have to raise money which will cause another round of dilution.
Bank and brokerage stock prices are going much lower.
Douglas A. McIntyre is an editor at 247wallst.com.
After months of denial and blame-shifting, Lehman Bros. (NYSE: LEH) is finally admitting that its condition is dire and is shopping for a buyer, bailout, or some other means of winding down the firm's leverage without wreaking havoc to the financial markets at large.
And now that's looking difficult. The Wall Street Journal reports (subscription required) that it has become "increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute. . . Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, and so far the government has been reluctant to do so."
Banks are considering that a fire sale of Lehman's assets, including commercial real estate, could further drive down prices and force other banks to take mark to market writedowns in a vicious cycle.
It's good to see that the Federal Reserve is feeling less generous about using taxpayer money to fund a bailout, although it might be that that's the least bad of all the possible outcomes. If it comes to that though, it probably won't include anything like the $10 per share gift that was given to Bear Stearns shareholders.
Several private equity firms have apparently made bids for the asset management division of Lehman (NYSE: LEH), including Neuberger Berman. The offers are said to be as high as $5 billion, and two of the firms who have made bids are Bain Capital LLC and Clayton Dubilier & Rice Inc.
Getting the "healthy" part of Lehman may be the deal of the century. According to Bloomberg, "the private-equity firms may get the investment business at a discount. Lehman's asset-management unit earned $361 million on $2.3 billion of revenue this year through August, according to a Sanford Bernstein."
The news is an indication of just how badly Lehman CEO Richard Fuld has screwed up his chances to save his company. Lehman's market cap it only $2.5 billion. A sale of its money management arm for $5 billion would have brought in enough capital to stabilize the company and might have prevented the run on its stock that has taken it from $16 to under $4 in five trading days.
Based on rumors from the major financial papers and websites, Lehman may be broken up and sold off before Monday. Neuberger Berman could have been sold weeks ago and Lehman would have had a way out.
But, it wasn't.
Douglas A. McIntyre is an editor at 247wallst.com.
Like Lehman (NYSE: LEH) before it, Merrill Lynch (NYSE: MER) is becoming a short-seller's dream. In the last five trading days, the stock has gone from almost $29 to under $17 on tremendous volume.
According to Reuters, "Looming large among investors' worries about Merrill are mortgage-backed securities and other structured debt held at two of its banking subsidiaries -- Merrill Lynch Bank USA and Merrill Lynch Bank & Trust Co."
The terrible trouble for Merrill and Lehman is that no one knows how badly their balance sheets have been damaged, not even their managements. As credit markets fluctuate and housing prices fall, the value of many financial instruments changes every day.
Bear Stearns was scuttled to a large extent because its large customers pulled out capital. Rumors will cause that.
With the rumors around Merrill, and the short-sellers' ability to fuel the fire, Merrill may be in for a awful week.
Douglas A. McIntyre is an editor at 247wallst.com.
Pershing Square Capital Management's William Ackman is famous for two things: his high-profile campaigns for management changes at public companies, and his prescient and aggressive short-selling and trash-talking of companies like MBIA (NYSE: MBI) and Freddie Mac (NYSE: FRE).
Neither of those would make most people think of Ackman as a compassionate, soft-hearted guy, but apparently the trials of Lehman Bros. (NYSE: LEH) have touched his heart. Speaking on CNBC he was asked about the company and said that it is in a "tough spot" and that he didn't want to pile on because he thinks that it's been "picked on enough."
Ackman did add that the company is unlikely to find a buyer, but also didn't talk about bankruptcy or a bailout. Instead, he said that the company would have to heal itself by shrinking. Given where the stock is trading right now, that's not such a bad outcome.
Ackman has been one of the most pessimistic -- and perceptive -- observers of the mortgage mess, and it might be a bullish sign that he's not ready to sound the death knell for Lehman.
The Securities and Exchange Commission, or NAMBLA for short, is focusing its resources on an 
Late Sunday night it was 
I've put together a good-sized Enron memorabilia collection, inspired by the affordability. I was able to buy an Enron lunch bag on eBay for less than the cost of a similar nonbranded product at Wal-Mart.
Historians are likely to look back on this week as one of the most significant in American economic history. This was the week that the government let 
It seems like years ago, but it was only Monday when
Now that a mass of mortgage-related write-downs has swamped major financial companies, Wall Street has turned its attention to the second half of the year to see whether the beatings will continue. Early indications are that they will. Both 
Several private equity firms have apparently made bids for the asset management division of 
Pershing Square Capital Management's William Ackman is famous for two things: his high-profile campaigns for management changes at public companies, and his prescient and aggressive short-selling and trash-talking of companies like 
Before the bell: Wall Street headed higher; automakers, retailers in focus
Waiting for the other shoe to drop: The looming credit crisis
Bet on T&A with J&J (JNJ)
