The Financial Timesreports that Lehman Brothers (NYSE: LEH) held "secret talks" to sell a stake of up to 50% in itself to investors in China and/or South Korea during the first week of August, but failed to reach any deal. The company held talks with Korea Development Bank and China's Citic Securities at its Times Square headquarters.
Of course all this happened while the company told everyone that everything was fine and blasted short sellers for raising questions about its balance sheet. And get this: back in June the company was buying back stock at a far higher valuation than it will now be able to raise capital at: that's just bad management.
The company's effort to sell a 50% stake just a few weeks ago does not bode well for the company's upcoming earnings report and neither does the fact that it was unable to reach any deal with the foreign investors.
"If people think they (Lehman) are heading toward bankruptcy, nobody will want to do business with them or make them new loans. That's Fuld's biggest problem," NYU economist Richard Sylla told The Associated Press.
But Lehman's credibility is so shot from the uncertainty and lack of forthrightness that it will likely have a hard time convincing anyone to trust it.
Lehman Bros. (NYSE: LEH) has battled hard against allegations of improper accounting as well as rumors (and evidence, but hey) the company is facing severe problems that could threaten its viability. The firm accused short sellers of spreading malicious rumors designed to bring the company down.
Now Bloomberg reports that Lehman has stopped covering Japan's consumer lenders. It has also retracted past research on the industry after Aiful Corp. threatened to sue Lehman over a report by an analyst suggesting that the company could be insolvent.
Lehman issued a statement saying that "all previous ratings and forecasts should no longer be relied upon,'' which has to be seen as an admission of poor research.
The irony here is just priceless: Lehman is battling short-sellers raising questions about its solvency while its own analysts over in Japan are raising questions about the solvency of consumer lenders there. Then Lehman basically admits that its analysts screwed up and just stops covering the entire industry.
It makes you wonder whether Lehman's people just don't really know much about solvency. If they can't tell whether Japanese lenders are OK, and admit that, how much faith can you have in the company's reassurances about its own balance sheet?
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. Yikes, Lehman downgrades Scripps (NYSE: SNI), Gannett (NYSE: GCI) pooped the bed. What the heck is happening to these paltry little rags?
Some thoughts:
The internet is the single biggest deflationary force ever invented and the "information deflation" is in full force.
Without a doubt, my bullish bent on the newspaper names was my single worst "call" of the year.
The thesis was that portals will buy the papers to feed content into their pipes.
That remains a viable option for some of the franchise properties, although it will seemingly happen -- if it happens -- from lower levels.
I still own some GCI January calls but have quickly become lottery tickets.
People familiar with the issue said that European regulators are gearing up to file new antitrust charges against Intel Corporation (NASDAQ: INTC). The charges, the Wall Street Journal reported, would allege Intel gave major European retailers an incentive not to sell computers that use Advanced Micro Devices Inc (NYSE: AMD) chips.
OTHER PAPERS:
The New York Times reported that News Corporation's (NYSE: NWS) New York Post and The Daily News, owned by Mortimer Zuckerman, are exploring a print pact and have been in talks to find ways to combine some business functions of the papers, according to people briefed on the matter.
Three people familiar with the matter said that the SEC subpoenaed Wall Street investment banks including The Goldman Sachs Group Inc (NYSE: GS), Deutsche Bank AG (NYSE: DB) and Merrill Lynch & Co Inc (NYSE: MER) in its hunt and crack down on suspected manipulation of Bear Stearns and Lehman Brothers Holdings Inc (NYSE: LEH) shares. Bloomberg reported that two of the people said the SEC, which yesterday curtailed short selling in financial stocks, is looking for e-mails and trading records and is also examining whether securities firms have "adequate controls" to deal properly with misconduct.
Lehman Bros. (NYSE: LEH), the once-proud investment banking firm that's seen its stock tumble from $74 to under $13 in the past year, has a solution to its problems: bring back the investor relations person who was the company's mouthpiece back when investors didn't know about the huge unchecked risks Lehman was taking.
Shaun Butler had run investors relations for the company since it went public in 1994 before retiring at the beginning of February, according (subscription required) to The Wall Street Journal.
It's not a material change, and there's probably nothing much to be read into it. Lehman is reportedly not in desperate need of more cash (although they also said that about Bear Stearns) and is considering a share buyback to boost its stock price. The company appears to see its problems as more perception related than operational, and obviously believes that bringing back a familiar face and voice will ease investors' nerves. MarketWatch has reported that the company is unlikely to be able to find a buyer because most banks have their own issues to deal with. So it looks like Lehman will have to win back the street on its own.
The market for private mortgage insurance has narrowed and is tougher to obtain, further pressuring home buyers and affecting the market, the Wall Street Journal reported. "Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting," said Len Sweeney, the chief risk officer at AIG United Guaranty, a part of American International Group Inc (NYSE: AIG).
In a agreement with Viacom Inc (NYSE: VIA), Google Inc (NASDAQ: GOOG) said it will remove visitor data from YouTube before it fulfills a judge's order to send data to Viacom, as a part of a larger copyright lawsuit, the Wall Street Journal reported.
OTHER PAPERS:
As part of its effort to emerge from bankruptcy protection, the Detroit News reported that Delphi Corp (OTC: DPHIQ) announced plans to sell its brake business. Delphi has retained W.Y. Campbell and Co to help sell the unit, which has around 1,000 employees worldwide.
The New York Post learned that Dick Fuld, the CEO of Lehman Brothers Holdings Inc (NYSE: LEH), is seriously considering ways to take the company private. The Post said that talks centering on the privatization of Lehman have "gotten very serious consideration," according to sources, although details on how a maneuver may work remain unclear.
The earnings season was officially launched last night with Alcoa Inc. (NYSE: AA) reporting better than expected numbers, and tomorrow we are going to see another big name, Marriott International (NYSE: MAR) report its second quarter numbers.
The company is due to report its current earnings prior to the market open, and going into tomorrow's report analysts are looking to see the company show 49 cents per share on $3.15 billion in revenues. The housing slump over the past year has definitely been hurting hotel operators, so it will be interesting to see what kind of quarter Marriott is able to show to its investors.
The last time the hotel chain released its quarterly numbers was back on April 17, when it matched analyst estimates for its first quarter with 33 cents per share. The stock made a brief rally following the release, but over the past month has been in a solid downward trend.
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.
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?
As Lehman Brothers Holdings Inc (NYSE: LEH) is about to report a second quarter loss of about $2B, the firm is closing in on raising over $5B in new capital, the Wall Street Journal reported. Once source of Lehman's new funding is reportedly the New Jersey Division of Investment.
The Financial Times reported that General Electric Company's (NYSE: GE) NBC Universal and British private equity firm GMT Communications Partners are expected to soon acquire Bigpoint, a German-based computer games website.
OTHER PAPERS:
According to the Independent, the credit crunch has cost the jobs of about 100 bankers at Barclays Plc (NYSE: BCS). The bank cut about 20 individuals on the leveraged finance team and will reportedly cut 80 more in investment banking and IT support.
Fortune reports that Lehman Brothers Holdings (NYSE: LEH) reported a $2.8 billion loss this morning. This $5.14 a share loss far exceeds the 22 cents a share that analysts were expecting. Thanks to mark-to-market asset write-downs and trading losses, Lehman posted revenue of negative $668 million in the latest quarter from $5.51 billion a year earlier.
The good news is that it reduced its leverage. Now it's only borrowing 12.5 dollars for every dollar of net equity compared 15.4 at the end of the first quarter. Lehman said it cut net assets by $60 billion in the latest quarter. And it plans to raise $6 billion in new equity -- a combination of common and preferred stock.
It's unclear why anyone would want to catch this falling knife. But those who do will demand a high price. And since Moody's (NYSE: MCO) is now cutting its outlook on Lehman to negative, it should be no big surprise that Lehman shares are down 10% in pre-market.
At best it was a week that was difficult; at worst it was a very concerning sign about what is to come. We have finally seen a significant drop in the overall sentiment due to extraordinarily high oil prices mixed with an unemployment level at 5.5%. The mixture of these and other troubling economic projections has finally come to cause investors to pause and realize that this is no place to be accepting risk beyond what is absolutely necessary.
This week will show a significant amount of reservation by investors not accepting of any shortfalls on earnings or even outlooks that are not significantly rosy. The current picture and the economic outlook was the focus of The Disciplined Investor Podcast this week, with help from money manager and economist, Michael "Mish" Sheldock.
Monday, June 9
Shuffle Master Inc. (NASDAQ: SHFL) will be reporting earnings that are expected to be $.07 per share. This has continued to be a difficult market for them even as casino construction has been rising around the world and the use of many of the products of this company are beneficial to the net profits of their customers. The stock has suffered dramatically over the past 12 months and, unless there is a product shift or new technology announced, there should be no reason that we see a catalyst for growth. Look for revenues of $45.55 million.
Ashworth Inc. (NASDAQ: ASHW) is a high-brow retailer that is expected to show a significant turn toward the negative this quarter. First Call estimates are looking for a negative $.06 per share while a year ago they were earning $.03 per share. Once again, there doesn't seem to be any reason why this company should see a beneficial upside unless investors are willing to short cover at this point. Even if that is the case, that will probably end up being temporary anyway.
Fortune -- which shares parent Time Warner (NYSE: TWX) with BloggingStocks -- provides a clue about how big of a write-down Lehman Brothers Holdings (NYSE: LEH) needs to take in order to account accurately for its Collateralized Debt Obligation (CDO) portfolio. By my estimate, that write-down could total roughly $4 billion -- wiping out 20% of Lehman's $20 billion in capital.
How so? I calculated $4.07 billion worth of write-downs -- $1.63 billion of the write-off is from worthless BB and below rated CDOs and another $2.44 billion is from the remaining CDOs that are worth about half their stated value. This is based on Fortune's report that Lehman has $6.5 billion worth of CDOs. The 25% that are rated BB or below it believes are worthless. The remaining 75% it figures are worth 50 cents on the dollar.
But wait, there's more. Lehman has $39 billion worth of Commercial Mortgage Backed Securities (CMBSs) which have lost value. A key index has declined in the last quarter -- but I don't know how much. Assuming the decline was 25%, Lehman would need to write down an additional $9.8 billion. If Lehman needed to take the $9.8 billion write-down plus the $4 billion for the CDOs, its capital would decline 75%.
When I think about how Lehman is not the only one to hold these dodgy securities, it becomes clear that our financial system is resting on a very shaky foundation.
Bloomberg News reports that Lehman Brothers Holdings (NYSE: LEH) wants to sell $4 billion in equity. But it already raised $6 billion so why does it need more? It should be no surprise -- but thanks to a chorus of statements by financial leaders that "the worst is over" -- including Lehman's CEO Richard Fuld, Jamie Dimon, Hank Paulson, and Barton Biggs some are surprised that there are still problems.
Since the crisis began -- last August when the Fed began cutting rates from 5.25% to 2% -- banks have been trying to reduce their ratio of debt to equity below the hugely risky 32:1. But it's hard when they hold $500 billion worth of Level 3 assets -- which don't trade and therefore have no objectively set market value. To maintain or improve their capital ratios, banks have been writing down the value of the securities on their books -- $276 billion worth so far -- and simultaneously raising capital. Citigroup (NYSE: C) has raised the most -- $44 billion.
S&P downgraded Lehman, Morgan Stanley (NYSE: MS) and Merrill Lynch (NYSE: MER) saying they may disclose more write-downs for devalued assets. And hedge fund manager David Einhorn -- who's short Lehman -- got into a verbal debate with Lehman CFO Erin Callan arguing that Lehman had failed to disclose $6 billion worth of such Level 3 assets -- known as Collateralized Debt Obligations (CDOs) and it needed to raise capital. Today's announcement suggests that Einhorn was right.
Just because executives act like cheerleaders, it doesn't mean investors should take them at their word.
The Financial Times reports that Lehman Brothers (NYSE: LEH) held "secret talks" to sell a stake of up to 50% in itself to investors in China and/or South Korea during the first week of August, but failed to reach any deal. The company held talks with Korea Development Bank and China's Citic Securities at its Times Square headquarters.
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The earnings season was officially launched last night with 
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 
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 .gif){kind=logo}
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