Anheuser-Busch Companies Inc (NYSE: BUD) is going to turn down InBev's unsolicited $46.35B takeover offer and that may come before week's end, the Wall Street Journal reported. InBev is then expected to pursue a hostile takeover and Anheuser will say the offer undervalues the company. Instead, Anheuser will attempt to boost its share price by selling non-core assets such as its theme parks.
The Wall Street Journal also reported that Belgian-Dutch financial firm Fortis NL (OTC: FORSY), in a move to increase its solvency, will attempt to raise $12.54B, and will also cancel its interim dividend and sell some assets.
The Financial Times reported that the London Stock Exchange, in a joint venture with Lehman Brothers Holdings Inc (NYSE: LEH), unveiled a pan-European equities trading platform to fight rivals that are hurting its market share.
Lehman Brothers (NYSE: LEH) shares are falling with other investment banks on news that Citigroup (NYSE: C) is in the process of cutting 6,500 jobs in its investment banking division. The move reflects the deterioration of market conditions over the past year, and seems to have investors worried about the health of the industry. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on LEH.
After hitting a one-year high of $78.86 last June, the stock hit a one-year low of $20.25 in March. This morning, LEH opened at $24.15. So far today the stock has hit a low of $3.20 and a high of $24.35. As of 12:25, LEH is trading at $23.26, down 0.94 (-3.9%). The chart for LEH looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $40 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 4.2% return in four months as long as LEH is below $40 at October expiration. Lehman would have to rise by more than 70% before we would start to lose money. Learn more about this type of trade here.
LEH hasn't been above $40 since mid-May and has been falling steeply recently, displaying resistance around $24. This trade could be risky if the financial sector turns things around shortly, but even if that happens, this position could be protected by resistance LEH might find at its 50-day moving average, which is currently around $38 and falling. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in LEH or C.
TheStreet.com's Jim Cramer says the acquired Bear Stearns portfolio is worth even less than he thought.
How bad was that Bear Stearns portfolio? I am beginning to believe that JPMorgan's (NYSE: JPM) (Cramer's Take) buy of Bear is looking like a big mistake. It can only be justified by what might have been an even bigger problem for JPM -- the collapse of the trades that Bear made, which were being processed by JPM's clearing.
We are now beginning to get a real sense of the worthlessness of the mortgage portfolios. Not that we got any help from the SEC, which has taken a "we don't care what's in the mortgages as long as you tell us you have mortgages" attitude. That's been worthless for investors, and maybe even for JPMorgan.
The losses now exceed $400 billion, according to my modeling (if you simply assumed that 50% of the exotic mortgages that were issued from 2005 to 2007 eventually went into default). That's amazing, but it looks like I dramatically underestimated the losses. UNDERESTIMATED!
The most egregious issuers of these exotic mortgages were Bear, Merrill Lynch (NYSE: MER) (Cramer's Take) and Lehman Brothers (NYSE: LEH) (Cramer's Take). I believe that JPM has taken in a huge number of uninsurable, non-hedgeable mortgage instruments that are a pure write-off. And that means they are probably underwater on everything they took in.
Morgan Stanley (NYSE: MS), the nation's second largest investment bank, posted its second quarter numbers today. As expected, the firm saw a hefty drop in quarterly profit. The ongoing credit crisis hit the bank hard and resulted in a 61% decline in quarterly profit, a number that could have been much worse.
The reason why I say that the situation could have been much worse is that the company benefited from the sale of around $1.4 billion in assets during the quarter. This contributed to a profit of 95 cents per share for the quarter.
The 95 cents per share was actually above Wall Street estimates, as analysts had been expecting to see the company show earnings for the quarter of 92 cents per share. But that has not prevented traders from pushing the stock lower in early morning trading. As of 11:00 am, we are seeing shares trading down 5% to $38.49.
Goldman Sachs (NYSE: GS) reported earnings today, and while revenue and profit were -- not surprisingly -- down from a year ago period (but higher compared to the previous quarter), it actually had profits to speak of, $2.09 billion of them to be exact. Indeed, Goldman did it again, surpassing Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue with a profit of $4.58 per share and revenue of $9.42 billion.
It would be only natural to ask how Goldman made $2 billion while Lehman lost $2.8 billion. The answers are many, not the least of which is size: Goldman is the world's biggest securities firm, Lehman Brothers (NYSE: LEH) is the smallest among the four Wall Street investment banks. Other factors could include better hedging, financial decision making, diversification, management and strength of balance sheet.
To get a feel of the differences in numbers, Goldman currently holds about $14 billion of leveraged loans, down from $52 billion at their height less than a year ago in August. Residential mortgages, which include the subprime loans, have fallen to about $15 billion on Goldman's balance sheet from $19 billion last quarter. Lehman Brothers' portfolio of mortgages, including commercial loans, stood at $60.8 billion. It also has about $18 billion of leveraged-buyout loans. It is no wonder CEO Fuld took ten minutes at the beginning of the conference call to take responsibility.
Lehman (NYSE: LEH) is recently up $1.60 to $27.41.
LEH reported a Q2 loss of $2.77 billion and gave an explanation of its risk-liquidity.
LEH June 27 straddle is priced at $2.47. LEH July option implied volatility of 78 is below a level of 114 from last week and above its 26-week average of 69 according to Track Data, suggesting larger risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
That Citigroup(NYSE:C) is closing its hedge fund is an embarrassment. I worked for Vikram Pandit at Mother Morgan (NYSE:MS) and he's a smart guy, evidenced by the fact that he sold his hedge fund to Citigroup for $800 million and the company dumped it 11 months later.
Another black mark, LehmanBrothers(NYSE:LEH) CFO Erin Callan was getting rave reviews for her poise as recently as yesterday. This morning she was tossed into the volcano. It just goes to show you that, on Wall Street, you're only as good as your last trade.
Finally, my brother suggested that the Lehman Brothers news is good for Goldman Sachs(NYSE:GS), which he knows I have a position in. At first I thought he was messing with me, as he does, but then he explained: "The Lehman business has to go somewhere." Given that I'm more concerned about the risk of contagion, I hadn't really thought about it like that. And while I'm happy to sell strength, I wanted to share that fare.
According to reports, Erin Callan, the charismatic CFO of Lehman Brothers Holdings (NYSE: LEH) is out of a job. So is Lehman's chief operating officer, Joseph Gregory.
As Charlie Gasparino reported for CNBC, "Callan and Gregory are leaving the investment bank, which has been under fire from its weak earnings performance and speculation that it will need to raise billions in capital to stay afloat, has seen its shares under intense pressure." Reuters reports that Herbert McDade will succeed Gregory, and Ian Lowitt will take over for Callan -- will become a senior investment banker at Lehman. I will discuss this at noon on Fox Business.
The market seems to hate the news -- with Lehman shares down 7% in premarket trading. Will the people who replace Callan (Lowitt) and Gregory (McDade) be so much more talented that they can extricate Lehman from its short- and long-term problems? Who knows how deep its writedowns will be in its Level 3 assets or how it will make money in the future, given that its core business of asset-backed securities has dried up.
Maybe these ousters make it a more obvious acquisition target. But they just look like sacrificial lambs on CEO Dick Fuld's altar to me. And they signal very deep problems to investors.
[This post has been recently updated to add more information as it was reported]
Lehman (NYSE: LEH) is recently trading at $22.17 in pre-open trading, below its close of $23.75 Wednesday.
CNBC reports CFO & COO will leave the company.
LEH June 24 straddle is priced at $4.90, July 24 straddle is priced at $7.35. LEH June option implied volatility is at 158, July is at 114; above its 26-week average of 65 according to Track Data, suggesting larger risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
If S&P 1340 doesn't hold, you're going to hear a lot of chatter regarding the March lows (S&P 1275) in a hurry. Be prepared. Be very prepared.
One very savvy soothsayer, who I just got off the phone with, doesn't think we get there. He's looking for S&P 1320-ish as a long side opportunity. Just so you're hearing what I'm hearing as heck, we don't call him "As Good As It Gets" for nothing.
Moi? Are you talking to me? You know my drill: I've got a pretty sizable ratio bet on (short crude, long oil), which I'm trading around as a function of price, along with some tertiary trading exposure, including Goldman (GS) calls.
Speaking of taxi drivers, how long do you think it'll be before cabs are allowed to pick up multiple passengers in the Big Apple? That should help with societal acrimony!
If you looked up "Where there's smoke, there's fire," you'd probably find a picture of Lehman Brothers (LEH)., this thing trades funky.
I'm seeing a lot of stocks trade "wide," which is to say they're jumping around. That's a recipe for smaller size. Adapt, don't conform.
Given the amount of typing I do on any given day, do you think I should get finger insurance?
According to Yahoo! Inc (NASDAQ: YHOO), the Wall Street Journal reported that a severance plan investor Carl Icahn said is "excessively expensive" would come into play if Icahn is successful in his plan to take control of the company's board; Yahoo! maintained that the plan is structured to prevent Yahoo! from altering or dismantling it while under a proxy challenge.
The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) almost reached a strategic deal with a group of Korean financial institutions as part of its recent capital raising initiative, and the investment bank may still sign an agreement with the Korean companies this year, inside sources said.
A source familiar with the matter told dealReporter that Barnes & Noble Inc (NYSE: BKS) is conducting due diligence, but has not established whether it will competitively bid for Borders Group Inc (NYSE: BGP). Should Barnes & Noble indicate real interest, the biding process could be delayed, the source said.
OTHER PAPERS:
The Detroit News reported that Ford Motor Company (NYSE: F), in an effort to keep up with changing consumer demand in the U.S., is assembling a plan that will shift entire truck plants to car production.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
If the next generation Apple (AAPL) iPhone is effectively a handheld computer, is the personal computer space a place to poke on the short side?
What's the franchise value for Sun Microsystems (SUNW, er, JAVA)?
Maybe that's the problem. In this ADD, immediate gratification world, perhaps folks don't remember that JAVA used to be SUNW?
In addition to the note that when I unwind my short crude I'm goning to sneak out of my long metal play, too?
While I grabbed some tertiary financial exposure this morning, why is "Good traders know how to make money while great traders know how to take a loss" repeating in my keppe as I watch the action and overhang in Lehman (LEH)?
Speaking of ticker symbols with G's in the front and I's behind, when do I revisit Gannett (GCI), which I pared nicely above $30 and kept some for the thesis?
TheStreet.com's Jim Cramer says constant vacillations and inconsistent messages have conspired to extend this crisis.
There was a reason to go ballistic. The financial system was falling apart because of bad loans that have since been magnified by huge leverage and dubious dividends.
And here we are, more than a year into the crisis, and the Federal Reserve and Treasury still refuse to admit the obvious, despite hideous data every day -- yesterday Lehman (NYSE: LEH) (Cramer's Take) and Washington Mutual (NYSE: WM) (Cramer's Take), today UBS (NYSE: UBS) (Cramer's Take) -- that something has to give. We are either going to be worried about a housing recession or worried about inflation. We cannot be worried about both. Because of this half-in/half-out viewpoint, we have continually failed to address either problem.
Last year was the year to cut and cut big to get refinancings done and allow banks to build capital by playing the yield curve, a la 1990. They blew that. They were worried about inflation. This year you either have to take a severe recession and just crush American business so it uses less energy and crush the American homeowner so he can't pay and then merge all of the banks, or you say we are going to solve the recession/housing conundrum first and address the inflation we can address: ethanol-based food inflation. You cannot do both! You have to take them sequentially.
UBS AG (NYSE: UBS) won't comment on write-down estimates, but according to the Wall Street Journal, investors are expecting it as prices for mortgage securities have significantly gotten worse over the past several weeks as evidenced by Lehman Brothers Holdings Inc (NYSE: LEH) profit warnings.
Yesterday Lehman's stock fell 8.7% as the firm announced a projected $2.8B second quarter loss and a $6B capital raise. Options activity indicated a lessening volatility, the Wall Street Journal reported, a sign that perhaps the worst may be over.
According to a person familiar with the matter, the Financial Times reported that China's Qingdao Haier has approached investment banks to advise it on a bid for General Electric Company's (NYSE: GE) appliance business.
OTHER PAPERS:
A brief filed by plaintiffs in a shareholder lawsuit against Yahoo! Inc (NASDAQ: YHOO) and its directors claimed that an employee severance plan put in place to protect workers after a merger with Microsoft Corporation (NASDAQ: MSFT) should be repealed immediately. The New York Times reported that the plaintiffs believe the plan could skew the outcome of a proxy battle between Yahoo! and Carl Icahn for control of the company.
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit www.Minyanville.com.
If Lehman (LEH) isn't the second coming of Bear Stearns, won't "sell the rumor, buy the news" come into play?
Why can't I shake the sense that a serious downside dislocation is lurking in the wings this summer?
Given the massive two-sided directional potential, have you defined your risk (both ways) in kind?
After all, doesn't setting stops remove emotion?
Another day, another dime (10%) for WaMu (WM) the killer whale?
What does it say that the New York Stock Exchange internals are still flat to the share?
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MAJOR PAPERS:
Goldman Sachs
Lehman
Minyanville's top dog, Todd Harrison, dares to ask in public what Wall Street types quietly consider in private. For more insight and ideas, visit 
Siemens (SI): More than layoffs, a strong sign of recession
McDonald's continues its coffee crusade
Cramer on BloggingStocks: Paulson and Bernanke step up to the plate
