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Lehman Brother Holdings faces bankruptcy

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noirua

noirua

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Bank of America and Barclays Bank have pulled out of the rescue of Lehman Brothers, it was announced a short while ago. The bank has involvement in Commercial property.
The US Treasury Secretary, Frank C Bolton, has said that they will not rescue the bank.
Wall Street prepares for Lehman Brothers potential bankruptcy: http://www.bloomberg.com/apps/news?pid=20601087&sid=aRc5IyxcHIbw&refer=home

Should the bank apply for Chapter 11 on Monday morning in the US then all of Lehman's branches in the UK would immediately be insolvent.
 
Can someone explain the chapter 11 bankruptcy. Will it result in fire sale of all its assets? Because this bank has huge holdings in many resource stocks namely around 3% stake in BHP (reduced from 5%) . Or they will be put under administrative management, which will oversee the sale and subsequent allotment of money to share holders.
 
mayk said:
Can someone explain the chapter 11 bankruptcy. Will it result in fire sale of all its assets? Because this bank has huge holdings in many resource stocks namely around 3% stake in BHP (reduced from 5%) . Or they will be put under administrative management, which will oversee the sale and subsequent allotment of money to share holders.
Click to expand...

But only on the NOT certain assumptions that:

1. All the required assets will be sold easily and within necessary timeframes. Um, in a market where $US Billion fire sales are going off every few days, where are all the keen junk debt buyers going to spring from?

2. The sales will generate enough "emergency" funding to cover all debt and still pay out shareholders. That is the only likely scenario where unsecured shareholders *might* get some *possibly very small* percentage return on their shares. All major stakeholders, debtors and secured shareholders come first...


aj
 
Well the after hours S&P futures have just opened and they are getting smashed, down about 40 points :eek: thats over 3%, expect the ASX to get a bad start to the week.
 
The failure by Fed, Treasury and banking officials to come up with
a sale of troubled investment bank Lehman Brothers has sent the Asian market reeling. The JPY has been bought against the peripheral currencies such as the AUD and NZD that has taken the USD/JPY down 200 pips to 105.90 from the NY close at 107.90. Fears of systemic risk related to the Lehman legs of complicated derivative transactions has the market and investors in full square-up mode and risk positions are being taken off of the table and this will likely continue as the full impact of the Lehman debacle is full absorbed. The uncertainty is likely to keep the JPY extremely buoyant, as carry trade unwinding and safe haven flows should dominate FX trading at this time of extreme uncertainty.


The leading proposal would divide Lehman into two entities, a "good bank" and a "bad bank." Barclays would buy the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank"s troubled assets, according to two people briefed on the proposal. Taxpayer money would not be included in such a deal, they said. Under that plan, the Wall Street banks would agree to provide up to 30 BLN USD of support to absorb the losses of the bad bank. That is roughly the same amount of money that the government agreed to commit to support JPMorgan Chase"s emergency takeover of Bear Stearns in March. Another option getting discussed would be the orderly liquidation of Lehman"s assets starting as early as Monday. In that scenario, participants in the session might fashion a deal under which other banks would keep lending money to Lehman as its holdings are wound down, sources said. The NY Times article goes on to say that none of the banks involved, however, have committed to any rescue plan, and talks could still fall apart. The talks will take on even greater urgency on Sunday as government officials push for a deal before the Asian markets open on Monday morning. Both Barclays and Bank of America expressed interest in buying Lehman and were negotiating hard, initially insisting that the government provide financial support. But federal officials were adamant that no public money be used a big point of contention because many of the top Wall Street executives believe that their banks, which have each written down tens of billions of dollars in assets, do not have the capacity to lead the rescue on their own. The prospects of a deal involving Bank of America appeared to fade as talks progressed Saturday and it became clear that the government would not stray from its position.

Slainte
...........Kauri
 
Seems like none of the others have that much of an interest to buy a near worthless Lehman. Easier to pick off the carcass the pieces afterwards.

Emergency trading session opened today in New York for derivatives to allow other counterparties to settle/hedge their books again Lehman debt it seems.

Going to be an interesting start to the week. Some panic I'm sure.

The question is, how much effect will this have on the other institutions, already hurting, and now about to cop any Lehman securities being next to worthless.

Locally, Lehman I know had issued securities to many of our local councils for hundreds of millions of dollars. Will have to check on what type, but that could be interesting :eek:
 
Even the great USA cant bail out everyone, this may be the start of what everyone has been dreading, a severe crises in money markets leading to a collapse of the finanacial system.

There I said it.
 
MER and BAC to merge now?

---
http://www.bloomberg.com/apps/news?pid=20601087&sid=acZ9mZrN3AOE&refer=home

Merrill Lynch Said to Be in Merger Talks With Bank of America

By Jonathan Keehner and Bradley Keoun

Sept. 14 (Bloomberg) -- Merrill Lynch & Co., the third- biggest U.S. securities firm, is in merger talks with Bank of America Corp., people with knowledge of the negotiations said.

The discussions came as Merrill's smaller rival Lehman Brothers Holdings Inc. moved closer to filing for bankruptcy after Barclays Plc and Bank of America abandoned talks to buy the investment bank and Wall Street prepared for its possible liquidation.

Bank of America spokesman Scott Silvestri declined to comment on Merrill. ``We don't comment on speculation,'' said Bank of America spokesman Bob Stickler.

Merrill and Lehman are based in New York. Bank of America is based in Charlotte, North Carolina.
 
MrBurns said:
Even the great USA cant bail out everyone, this may be the start of what everyone has been dreading, a severe crises in money markets leading to a collapse of the finanacial system.

There I said it.
Click to expand...
I suppose as a sector contracts then some companies must go bust to give the rest a reasonable living.
Two more airlines went bust overnight in Europe, making three this weekend. Twenty eight others are thought to be in trouble.
 
2331 GMT [Dow Jones] Turbulence in local banking and finance stocks expected, says senior institutional trader after reports that Lehman Brothers is expected to file for bankruptcy protection and Wall Street Journal report that Bank of America is in talks to buy Merrill Lynch at US$29/share. "If it's in the WSJ, there's a good chance it might happen; the papers have been pretty accurate," says a trader, adding "news might break later today and I think any deal will be seen as a positive for our banking sector." (WEL)
 
I wonder how ANZ will fare in all this. Remember that back in February they announced that they had exposure to CDS.

between 2005 and February 2007, ANZ entered into derivative transactions which involved selling credit protection on a portfolio of corporate names, and simultaneously buying matching protection from highly rated US financial
institutions to remove market risk. This was perceived to involve little credit risk and generated modest trading income.

The significant increase in derivative market credit spreads and volatilities has resulted in a positive mark to market position with the sellers of the credit protection. However one counterparty, which is a US monoline insurer, has been downgraded to a CCC credit rating. The uncertainty around the ability of that firm to meet its obligations under the hedging agreement has resulted in an accounting requirement to raise an Individual Provision of US$200 million based on the current mark to market exposure to that monoline.

The effective economic impact if the monoline insurer fails is that ANZ takes on direct exposure to a high quality portfolio of corporate names. In fact, this portfolio has a higher proportion of investment grade corporates than ANZ’s existing Institutional portfolio. For an actual loss to emerge, around 20% of names within the portfolio would need to default. This would only occur in an extreme environment in which a significant number of companies defaulted globally, which is not anticipated under any current economic scenario.
Click to expand...

I wonder if that scenario is becoming more likely?
 
sam76 said:
2331 GMT [Dow Jones] Turbulence in local banking and finance stocks expected, says senior institutional trader after reports that Lehman Brothers is expected to file for bankruptcy protection and Wall Street Journal report that Bank of America is in talks to buy Merrill Lynch at US$29/share. "If it's in the WSJ, there's a good chance it might happen; the papers have been pretty accurate," says a trader, adding "news might break later today and I think any deal will be seen as a positive for our banking sector." (WEL)
Click to expand...
"Positive for our banking sector!!"How did the purchase of Countrywide by BofA improve the financial sector?It has continued to go backwards since that time.I think they overpaid for the entity also.Merrill shares closed at $17.05 on Friday.A big possibility of their shares falling again when the Dow opens tonight.A brave call IMHO.
 
sassa said:
"Positive for our banking sector!!"How did the purchase of Countrywide by BofA improve the financial sector?It has continued to go backwards since that time.I think they overpaid for the entity also.Merrill shares closed at $17.05 on Friday.A big possibility of their shares falling again when the Dow opens tonight.A brave call IMHO.
Click to expand...

It's a good point sassa, remember B of A overpaid enormously for their first stake in CFC at $18 a share, subsequently they bid $7 and change for the rest of the company and there is still a large possibility that they will revise that bid significantly lower. It's clear these guys don't have a clue what they're doing.

Merrill has to know that they are next so it is little wonder they are shopping themselves. If B of A pays anywhere near the quoted figures they are nuts. They should also expect a ratings downgrade.
 
And it looks like BoA is bidding $44m for ML. i.e. $29 per share (according to Bloomberg). If they keep buying things like this, BoA will need to file for chapter 11 too. :banghead:
 
Banks Roll Out $70 Billion Loan Program
Associated Press
September 14, 2008 10:42 p.m.

NEW YORK -- A group of global banks and securities firms announced late Sunday a $70 billion loan program that financial companies can tap to help ease a credit shortage that threatens global financial markets.

The ten banks, which include JPMorgan Chase & Co. and Goldman Sachs Group Inc., said they were committing $7 billion each for the pool. The pool would act as a signal to the marketplace that banks, brokerages, and other financial companies can lean on the fund to take care of borrowing needs.

The banks said the program will be available to participating banks which can get a cash infusion up to a maximum of one-third of the total size of the pool. The size of the loan program might increase as "other banks are permitted to join."

All participating banks intend to use this facility beginning this week, the statement said.

The banks also include Bank of America Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, Merrill Lynch & Co., Morgan Stanley and UBS.

The banks made the announcement to try to head off market disruptions after the possible failure of investment bank Lehman Brothers Holdings Inc. Lehman was expected to file for bankruptcy by Monday after succumbing to dwindling investor confidence due to losses from its real estate holdings.

http://online.wsj.com/article/SB122144631339134981.html?mod=mktw
 
And here's more - from Crikey. Alan Kohler -

As I write, it's about 5pm Sunday in Manhattan, and it’s been another long day at the New York Federal Reserve headquarters in Liberty Street, around the corner from Wall Street, as the regulators and Wall Street play chicken over Lehman Brothers.

The next 24 hours will be one of the most decisive and significant in our lifetimes.

Bankers in black town cars began arriving at Liberty Street early in the day yesterday and at 7.30am three bags of Dunkin Donuts were delivered. On Saturday there had been 15 hours of donuts and coffee; yesterday was the same.

On Saturday afternoon, Barclays Bank of the UK pulled out of a plan to buy the Lehman "good bank" because it couldn’t get indemnities.

But in any case, the matching plan for US banks to continue trading with the "bad bank", which contain all of Lehman’s toxic mortgage exposures, was already in trouble.

The question remains: who will step up? Who will throw capital away buying an insolvent institution for zero dollars without taxpayers' money making up the gap? Nobody will -- or can.

The three men trying to orchestrate the rescue of Lehman are Treasury secretary Hank Paulson, Fed chairman Ben Bernanke (who has stayed in Washington) and New York Fed boss Tim Geithner.

But for them the moral hazard problems are now enormous. Having put taxpayers money into guaranteeing Bear Stearns’ worst assets and then bailing out Fannie Mae and Freddie Mac, they have to draw the line.

If Lehman goes, then so do Washington Mutual, and then American International Group, each of which is already teetering. Today’s emergency, though, is Lehman.

And no one wants to buy Lehman for a positive price, or even zero, unless there is a public subsidy -- that is, taking the most toxic assets out of the picture. In fact Barclays didn’t even want to deal on the good assets without a guarantee.

Pictured arriving yesterday in Liberty Street were Robert Wolf of UBS Americas, Stephen Black of JP Morgan Chase, Vikram Pandit of Citigroup, so we know they are involved in the talks. Others made it through without being photographed.

Early on Saturday there seemed a chance that Bank of America would step up to the plate, but it, too, was insisting on government support.

Paulson, Geithner and Bernanke, meanwhile, are holding out. They were trying to play Bank of America and Barclays off against each other but that strategy has now failed, and now they are just jawboning the others – telling them that if they do not put their capital on the line and continue to trade with Lehman this week, they would also suffer devastating counterparty runs this week and would lose more capital if they did not do it. In other words they all are playing chicken.

If someone does not blink tonight New York time, which is our daytime, then it looks like Lehman will crash before dinner tonight.

The Wall Street Journal has reported this morning that Lehman has hired law firm Weil, Gotshal and Manges LLP, a bankruptcy specialist, to prepare a Chapter 11 filing.

Meanwhile Bloomberg has reported that banks and brokers held a session a few hours ago for netting derivatives transactions with Lehman, or cancelling trades that offset each other, in case the New York-based firm files for bankruptcy before midnight New York time.


There was a statement from the International Swaps and Derivatives Association:

The purpose of this session is to reduce risk associated with a potential Lehman Brothers Inc. bankruptcy filing. The ISDA includes 218 banks, brokerages, insurance companies and other financial institutions from the US and abroad.

ISDA confirms a netting trading session will take place between 2pm and 4pm New York time for over-the-counter derivatives. Trades are contingent on a bankruptcy filing at or before 11:59pm New York time, Sunday, September 14, 2008. If there is no filing, the trades cease to exist.

If there is a bankruptcy today, then Lehman’s brokerage units would have to file Chapter 7 liquidation, in which a court-appointed trustee would take over and liquidate its assets, so the broking customers could get back their money.

Lehman’s lenders would immediately withdraw all lines of credit, since Chapter 11 would be a default event.

There would then be a scramble to see how many of Lehman’s credit default swaps trades could be offset, with new counterparties found.

Nobody knows how much Lehman has in CDS contracts because this trade is not disclosed, but in a survey last year, Fitch Ratings listed Lehman among the top 10 largest CDS counterparties. If it fails, then, as the ISDA statement above implies, a huge number of CDS contracts will be worthless unless new counterparties can be found.

Australian municipal councils and others who bought CDOs from Lehman will also be watching events unfold with close interest.

Lehman was one of the counterparties to about 70 per cent of what was sold to the councils. It was a counterparty or guarantor in one capacity or another. It is also understood to be a reference company in more than 50 per cent of the CDOs.

So in the first instance, the failure of its debt would be a credit event for those CDOs (most of which also reference Fannie Mae and Freddie Mac -- and for that matter AIG, Merrill Lynch and Washington Mutual) and this would push those CDOs towards loss.

The other problem with a Lehman bankruptcy is that its assets -- stock, property and mortgage securities -- are likely to hit the market in a firesale, forcing prices even lower and then, next quarter, forcing further mark-to-market write-downs by other banks and investment banks.

In fact it’s unlikely to be a slow-motion train wreck this time. With Lehman in liquidation, and Washington Mutual and AIG on the brink, the credit market would likely shut down entirely and interbank lending would cease.

In his newsletter yesterday, Nouriel Roubini wrote:

What we are facing now is the beginning of the unravelling and collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIVs, conduits, etc) that look like banks (as they borrow short, are highly leveraged and lend and invest long and in illiquid ways) and thus are highly vulnerable to bank-like runs; but unlike banks they are not properly regulated and supervised, they don’t have access to deposit insurance and don’t have access to the lender of last resort support of the central bank (with now only a small group of them having access to the limited and conditional and thus fragile support of the Fed).

The step by step, ad hoc and non-holistic approach of Fed and Treasury to crisis management has been a failure so far as plugging and filling one hole at the time is useless when the entire system of levies is collapsing in the perfect financial storm of the century. A much more radical, holistic and systemic approach to crisis management is now necessary.

It is hard to imagine what that might be.
 

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