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
While Lehman Brothers (NYSE: LEH) reported dire preliminary Q2 results last week and is scheduled to release full results this morning, Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) are also scheduled to report quarterly results this week. Will the news continue to be dire, or will there be some glimmer of hope the numbers?
Goldman Sachs is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of $3.41 per share, down 30.8% from the same period of last year, but up 5.6% from the previous quarter. The company has provided positive surprises recently -- by as much as 40.8%.
New York-based Goldman Sachs is one of the largest investment banking and asset management firms on the NYSE, a global leader in mergers and acquisitions advice and securities underwriting. In the past year, the company's revenues were $87.9 billion and its net income totaled $11.6 billion. Its long-term EPS growth forecast is 13.3%, which is better than the financial sector average. The consensus recommendation of analysts remains to hold Goldman Sachs.
Shares are down 17.1% since the beginning of the year, and down 23.7% from a year ago. GS trades at a P/E ratio of 8.37. Shares closed Friday at $11.54.
I'm not sure how management at Lehman Brothers Holdings Inc. (NYSE: LEH) has time to run the business. What's more, with all the turbulence, I'm wondering if many of the employees are working mostly on parsing rumors and fine-tuning resumes.
Of course, this week Lehman got rid of its CFO, Erin Callan and president, Joseph Gregory. The company also raised $6 billion, which was quite dilutive. So from Monday to Friday, the stock price plunged from $33 to $25.81.
Yet, by Friday, things were perking up. The stock price shot up 13.7%. Maurice "Hank" Greenberg, the, who is the former CEO of AIG (NYSE: AIG), said he bought shares. This was also the case with BlackRock (NYSE: BLK) and Putnam Investments.
But there was something else: Wall Street was abuzz with buyout rumors.
In fact, according to a report from CNBC, it looks like the senior management team of Lehman is meeting this weekend (which is a rare thing). Are they talking to possible suitors? Or, is it to review the figures for Q2? Both?
Despite all this, the fact remains that Lehman's potential suitors are also distressed. So, even if there is a deal, the valuation is likely to be muted.
But there is an interesting scenario: Blackstone Group LLP (NYSE: BX) as a buyer or major investor. The firm is well capitalized and may want an investment banking platform. Moreover, the firm's cofounders -- Stephen Schwarzman (CEO) and Peter Peterson (Senior Chairman) -- were formerly with Lehman (back in the 1980s).
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?
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MAJOR PAPERS:
Goldman Sachs
Lehman
Goldman Sachs is expected by analysts surveyed by Thomson Financial to report second-quarter earnings of $3.41 per share, down 30.8% from the same period of last year, but up 5.6% from the previous quarter. The company has provided 
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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 
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