Rough Cut: Last night at Lehman

Lehman Brothers employees carried out boxes of their possessions on Sunday night in New York as bankruptcy became inevitable. View the rough cut video from Reuters. 

Force Fed

lehman1.jpgThere was a rumor that an announcement on Lehman was coming this morning at 6. Not that it would have taken a day-break jolt to get newsrooms and trading floors buzzing over the embattled investment bank – heck, the echo of the last two days will last for months. Bids are due later today for Lehman’s asset management jewels, but with the U.S. government now playing the part of the 800 lb gorilla in the room, the fate of the entire bank is much more in question than just its best businesses.

It’s unlikely the US government will want to offer more support to a Lehman deal than it did to Bear Stearns buyer JP Morgan. In fact, there is probably less appetite for a bailout now, given the opening of the Fed’s liquidity window to investment banks seems to have kept money markets calm this time around, though it clearly hasn’t saved Lehman. And at the end of the day, that’s really what the Fed is responsible for – keeping the system safe with lots of liquidity when necessary. So if there is nothing more on the table, is Lehman likely to see less than a $2 bill taped to its front door?

Other deals of the day:

* Deutsche Bank is poised to swoop on rival Postbank in a two-part takeover valuing the retail lender at roughly $13 billion, sources with direct knowledge of the matter said.

Lehman troubles cast pall on neighbors

lehman.jpegLehman’s troubles are spreading not only through its headquarters in Midtown Manhattan, but through the surrounding streets.

From the nearby gyro cart to the glitzy bar a stone’s throw from the bank, many others are feeling the ripple effect.

At Tonic Restaurant & Bar, business has taken a significant hit since the end of February, said Joseph Jacobino, its marketing and sales director. Before February, Lehman had two to three corporate events at the midtown bar each week, Jacobino said.

Fire Sales and Shotgun Weddings

lehman2.jpgThe specter of Bear Stearns has never loomed so large outside the offices of Lehman Brothers. The embattled investment bank made a tough call deciding to auction a crown jewel in a market convinced the bank is close to a going-out-of-business sale.  With its stock price crashing, its credit rating shaken and murmurs up and down Wall Street about its counterparty risk, analysts are increasingly convinced that the Fed’s liquidity window – opened to investment banks after Bear’s collapse – will not be enough to save the house.

Chief Executive Dick Fuld implied on Wednesday that he was open to selling the firm, but who would buy now if they could buy later at a cheaper price? And if Lehman is the bride in a shotgun wedding officiated by the Fed’s Ben Bernanke, who would be the groom? Goldman Sachs’ share price fell 2 percent in early trading, and Morgan Stanley is just across the street… a couple doors down 7th avenue from a strip club, in case anyone wanted to throw a batchelor party. 

Other deals of the day:

* Japanese dairy goods maker Meiji Dairies will take over chocolate producer Meiji Seika in a stock deal worth about $1.8 billion, creating the country’s fifth-biggest food company.

At Lehman, a stunning loss leads to serious thought

lehman-1.jpgFrom the Iranian coffee cart guy to the Italian graduate student, almost everyone who walked past Lehman Brothers’ headquarters on a  windy Wednesday morning in New York seemed to stop and mull its future.

Philipp Steiner, a graduate student in entrepreneurship from Italy, walked up to Lehman’s offices at 50th St. and 7th Ave after reading news about the investment bank’s $3.93 billion quarterly loss on the famous news ticker a few blocks south in Times Square. There’s never such big news in Italy, he said. Still, he didn’t think Lehman bankers had too much to worry about, despite its troubles.

“I would see that as a good experience, and then move on to another job,” Steiner said.

Raise or Fuld?

fuld2.jpgUncovering another dire quarter, with $5.6 billion in net writedowns and a worse-than-expected $3.93 billion loss, Lehman Brothers said it plans to sell a majority stake in its investment management division and spin off commercial real estate assets. The Koreans aren’t buying — they officially ran for the hills overnight — and Lehman also moved to dump other assets before announcing its results. It said in a filing it was chopping its stake in BHP Billiton almost in half, to below 3 percent. Back when Korea Development Bank was still interested in a Lehman stake, the word was that the two sides were having trouble agreeing on a price. Analyst Dick Bove said the bank was refusing to take what it believed were fire sale prices for its key assets. The question now is whether the offer of a majority stake in its investment division represents a change of heart — one that could smack of desperation for a market all too ready to believe the worst.

Other deals of the day:

* Coca-Cola plans to seek approval under China’s antitrust law for its $2.5 billion bid for top domestic juice-maker China Huiyuan Juice Group, the final obstacle to what would be the largest foreign takeover of a local firm, Huiyuan said.

* Infosys Technologies , India’s second-largest software services exporter, said it was confident its bid for Britain’s Axon Group would succeed and there was no rival bid on the table at the moment.

Ten Years Later

merrill.jpgNobody knows better than South Korea how elusive the floor can be when markets are crying fire-sale. Pushed to the wall during the Asia Crisis a decade ago, the country’s banks had their assets priced in the pennies-on-the-dollar range. Here now, with the shoe squarely on the other foot, is Korea Asset Management, a government debt clearer that says its purchase of illiquid Merrill Lynch debt securities is faltering over price. Local media reported in July that Kamco planned to raise up to 2 trillion won ($1.98 billion) to buy U.S. non-performing loans with Shinhan Bank and Mirae Asset Securities. Kamco had said it was in the process of raising about $1 billion to buy distressed mortgage assets from U.S. banks and expected double-digit returns from its investments. Hardly the kind of buying clout that Merrill faced when it agreed to sell $30.6 billion of collateralized debt obligations to a Lone Star affiliate in July for 22 cents on the dollar. If nothing else, execs at Lehman Brothers will be watching this high-stakes haggling with much nervous interest as they negotiate with another South Korean state-owned institution, Korea Development Bank, over a possible joint investment in the CDO-laden U.S. investment bank.

Other deals of the day:

* Novolipetsk Steel, the Russian steel maker owned by billionaire Vladimir Lisin, has agreed to pay $400 million in cash to acquire U.S. hot-rolled steel maker Beta Steel and expand its presence in North America.

* InBev is to hold an extraordinary shareholders meeting on Sept. 29 to vote on its planned $52 billion takeover of Anheuser Busch and related matters.

Coke’s juicy China premium

A customer takes a bottle of Coca-Cola next to packets of Huiyuan fruit juice at a supermarket in JinanCoke pulled off the single largest takeover in Chinese history overnight, offering to buy juice maker Huiyuan for three times what the company was worth. Braving a notoriously difficult foreign M&A environment, where the state dominates the corporate sector and pumps out reams of regulatory red tape and where nationalistic pride often triggers protests when foreign firms gain influence over domestic firms. Since capitalism is good these days, that premium should go a long way toward suppressing any nationalistic distaste with the deal. Interesting to note that Chinese inbound corporate deals so far are up 30 percent from a year ago, to $15.3 billion.

Hedge fund manager Ospraie Management will close its flagship fund after it plunged 27 percent in August on losses in energy, mining and natural resources equity holdings, in one of the biggest ever closures of a commodities-focused hedge fund. The closure of the fund, announced by the firm’s founder Dwight Anderson in a letter to investors on Tuesday, could be more bad news for Lehman Brothers, which took a 20 percent stake in the hedge fund manager in 2005. One expert said the closure of the fund, which at the time of the letter’s writing had lost 38.59 percent this year, may also have played a role in bringing down U.S. stocks yesterday, which fell after initially climbing more than 1 percent. Lehman shares were down more than 3 percent in after-hours trading.

Other deals of the day:

* South Korea’s military savings fund would consider joining Korea Development Bank in a bid for Lehman Brothers if KDB made such an offer, as now appears a good time for U.S. investments, the fund’s chairman said.

Cheerleader Support

A high school cheerleader holds up a fellow student during the Japan Cup 2008 cheerleading competitionTurns out, Korea Development Bank is in talks with Lehman Brothers – but now, after the government threw cold water on prospects for a solo KDB investment, the question has become which local bank will be partnered up with the state-run bank for this bold investment. KDB was to be a “cheerleader” rather than the main player in any deal, the government said. KDB CEO, Min Euoo-sung, headed Lehman’s local operations until earlier this year, so he’s well placed to wield the pom-poms. Investors there are nervous – which they should be given Lehman’s more-than $60 billion of mortgage and mortgage security exposure. South Korean bank shares tumbled today as markets pondered which mighty institution might be encouraged to step up. Names to keep in mind are Shinhan Financial Group, Woori Finance Holdings and Hana Financial Group. How much Lehman might a KDB-backed venture buy? Min said one possibility was for KDB to form a consortium with private banks to jointly buy Lehman. Pricing remains an issue, of course. The Telegraph reported Lehman had stepped up talks with KDB to raise as much as $6 billion in a share sale that could be concluded this week.

Other deals of the day:

* Natural gas producer Chesapeake Energy said it agreed to sell a 25 percent interest in its Fayetteville Shale assets in Arkansas for $1.9 billion to BP America, a unit of BP.

* The world’s third biggest platinum producer Lonmin said a merger with Xstrata would lead to major synergy benefits and the firm would like to hold talks with its hostile suitor if a formal bid is made at a higher level.

In for a penny…

Merrill Lynch CEO John Thain poses before a news conference in MumbaiSingapore’s Temasek made clear how bullish it is on Merrill Lynch in a Bloomberg TV interview, expressing great confidence in CEO John Thain. The news service reported that the Singapore wealth fund has U.S. clearance to raise its stake in the brokerage to as much as 14 percent. That would be worth roughly $1.7 billion on the open market. Though less if they issued new shares, it would certainly help Merrill deal with the $5.7 billion in write-downs it said it would take in the third quarter, and would probably be worth even more as a sign of steady capital support from its biggest share holder.

Such lifelines are likely to keep pumping funds into struggling Western banks, according to a regional executive at one of the world’s biggest institutional money managers. Hon Cheung, regional director of the Official Institutions Group in Asia at State Street Global Advisors said he expects the funds increasingly to adopt passive investment approaches, given the need to move large amounts of money without disrupting markets. “Their purpose is not to support the U.S. taxpayer or the U.S. economy or to ensure stable global markets. If by doing that, they get a side benefit that’s great. But their principal job is to benefit the stakeholders,” said Cheung. And as these sovereign wealth funds aren’t even really beholden to share holders, they may have stomach for even more stunning losses.

Lehman Brothers has asked three private equity firms to remain in the bidding for its asset management arm even though the investment bank has yet decide on whether to sell the unit, the Financial Times reported. Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital have been told by Lehman that their bids are high enough to go forward, the paper said, citing people familiar with the matter. Although Lehman has not reached a decision, it has been soliciting bids from private equity firms to gauge interest in its asset management arm, which includes Neuberger Berman, the fund manager, and minority stakes in several hedge funds.