Last wisdom from Lehman Brothers
“Dear readers, let us begin this week’s missive by acknowledging its partial incompleteness. For understandable considerations, there are some capital market situations that we cannot discuss. We thank all our readers for their support and look forward to continuing to provide you with timely analysis.”
This is how Lehman Brothers’ strategists began their last ever weekly research note, published on Saturday – only two days before the U.S. investment bank collapsed.
In the 146-page research, Lehman strategists argued that bonds are performing well in September thanks to rising risk aversion and financial institution uncertainties.
“September already shapes up as a splendid month for bonds, thanks to the usual seasonal elevation in risk apprehension accompanied by special amplification through financial institution uncertainties,” wrote strategists at Lehman.
Ironically, Institutional Investor magazine named Lehman Brothers as its top All-America fixed income research team for a ninth straight year on Tuesday.
“September has been a prosperous month for credit risk shorts,” Lehman strategists noted. “With third-quarter earnings for some financials coming out this week and the rest of major corporates over October, with the global economic outlook wilting, and with a hyper-risk sensitive capital market regime in effect, we will maintain our predilection toward short credit exposure.”
Little did they know that their own bank’s collapse would reinforce their argument. Investors dumped risky assets across the board, including equities and credit, sending government bonds sharply higher as Lehman filed for bankruptcy protection and Bank of America agreed to buy another Wall Street giant Merrill Lynch.