Lame Lehman Brothers Takes Bullet To Head

September 14, 2008

Elaine Meinel Supkis

The three-legged banking/investment consortium is probably going to be put out of its pain tomorrow. The vulture feeding frenzy is frightening other bloated, lame banking/investment houses which are frantically trying to find bookies who will place bets on them as they limp around the race track. Sorry, guys. It won't turn you all into Secretariats. The rescue operation has failed. The attempt to split Lehman into a good bank/bad bank has failed. Imagine that. HAHAHA. Like some sort of like those stories about the evil/good twins of yore.

Merrill Said to Discuss Merger With Bank of America

(Bloomberg) -- Merrill Lynch & Co. is in merger talks with Bank of America Corp. after shares of the third- biggest U.S. securities firm fell by more than 35 percent last week and smaller rival Lehman Brothers Holdings Inc. neared bankruptcy, people with knowledge of the negotiations said.

Discussions about a potential transaction were proceeding after Bank of America, the biggest U.S. consumer bank, and Barclays Plc, the U.K.'s third-largest lender, abandoned talks to buy Lehman earlier today.

Merrill's board was considering a $29 a share offer, the Wall Street Journal reported, a 70 percent more than Merrill's closing price of $17.05 in New York trading on Sept. 12. Such a deal would value the firm at more than $40 billion. The New York Times reported that Bank of America was in advanced talks to buy Merrill, which employs the largest U.S. brokerage force, for between $25 and $30 a share, citing people briefed on the negotiations.

The graph showing the history of Lehman Brothers ever since they went public clearly shows the classic collapse signs all similar organizations go through. The build-up is always much more gradual than the fall. Click on the image to enlarge.

We see that the peak was in the middle of 2006. There is a very small fall from July, 2006, until January, 2008. This is when even dumb people figured out the G7 global banking system was totally destroyed. The first fall was a fairly quiet bailing out of the people who read news services like here at Culture of Life News. By March, even readers of Fortune Magazine of the New York Times was dimly aware that all the investment systems set up by the biggest banking houses was totally and fatally messed up.

The big sell-off began in ernest. We see this in nearly all the graphs of all the major financial houses! There was a pause in this epic collapse during July and August because people actually believed that Bernanke and Paulson could pull off some sort of salvation in the form of trillions in quick funny money from the funny money window blasted into the Federal Reserve's vaults. But the collapse of Fannie Mae and Freddie Mac was the last straw.

For ALL the investors in the STOCKS were stuck with NOTHING. Not one thin dime. The BOND holders which are nuclear armed dragons in places like China were protected. This is normal. When given a choice, who to irritate, it is wisdom to not irritate heavily-armed dragons. Individual investors are just so many mice and sheep. Made to be eaten by dragons and wolves. Not to mention the pesky raptors that are frightening Bernanke and Paulson. Short selling bears moved in and finished off Lehman Brothers and are now set to devour Merrill Lynch. Next is the big game, the moose called Goldman Sachs. Yummy, yummy.

NYT: In Frantic Day, Wall St. Banks on Edge

The leading proposal to rescue Lehman had been to divide the bank into two entities, a “good bank” and a “bad bank.” Under that last scenario, Barclays would have bought 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.

But that plan fell apart on Sunday, making it likely that Lehman would be forced to liquidate.

The hurricane blew out the windows of these big investment houses and the glass lies shattered on the ground. The losses from the hurricane is very real and quite physical. I just talked to a relative who lives in Houston. He said that they might not have any electricity for a MONTH. Houston is a major city and far more important than New Orleans. The epic mess from Ike is going to be yet another arrow in the chest of all these organizations. Even if they get insurance, the insurance costs might cause insurance companies to go bankrupt, too.

I have pointed out in the past that epic hurricanes and earthquakes, when they arrive right when the economy is getting much weaker, cause huge dislocations which can be very huge. History is littered with such examples. The timing of this particular epic storm is very bad. Chicago today had seven inches of rain and downtown is flooded. All this water is now running towards New Orleans! More about that later.

The US cannot save everyone at once. It has to pick and choose. Saving the banking system after it merrily looted the entire planet earth, caused epic inflation and drove billions of people into terminal debt, they don't deserve to be saved. They deserve to be set up as EXAMPLES so future bankers shudder with fear as they pass the dangling skeletons hanging from Wall Street lamp posts. We could lop off the heads of the heads of these stupid organizations and put them on pikes on the Brooklyn Bridge. This would be very educational.

This is all about 'moral hazard'. The authors of this mess paid themselves OBSCENE benefits! They poured billions into their own pockets. So they deserve to be stripped of absolutely everything. And I mean, even the shirt off of their backs. Make them walk around naked. Set the dogs on them. Let's go to the past to visit the demented idiot who bankrupted Lehman Brothers:

Fortune Magazine, April 11, 2006: Lehman Brothers: A super-hot machine

Lehman Brothers, a 156-year-old firm that has had numerous brushes with death is now enjoying its greatest run ever. Richard S. Fuld Jr., 59, took over the notoriously fractious Lehman Brothers 13 years ago, when it was a forgotten subsidiary within the rat's nest that was Shearson/American Express. Driven partly by those who dismissed him and his firm as second- or even third-rate, Fuld transformed Lehman from Wall Street weakling to global powerhouse.

Consider this: When Lehman went public in 1994, it had only $75 million in earnings, with a paltry return on equity of 2.2%. Fast-forward to 2005, and the turnaround is breathtaking: Lehman (Research) booked $32 billion in revenues, $3.2 billion in profits, and hit 19.4% in return on equity. Over the past decade Lehman's stock is up 29% per annum on average, highest of any major securities firm and 16th best among the FORTUNE 500.

In many ways Fuld is precisely what you'd expect at a firm that was once defined by its internecine warfare: aggressive, confrontational, blunt. Yet despite this no-holds-barred demeanor—or perhaps because of it—Fuld has incongruously turned Lehman into one of Wall Street's most harmonious firms. Fuld's modus operandi has been to bind his employees' fates together—to turn the culture from one of sibling rivalry to cooperation and teamwork. His tool: money.

Skip McGee, Lehman's head of investment banking, puts it simply: "Instead of trying to divide fees up and allocate them to different bankers and departments, for purposes of compensation calculations, we just double-count revenues."

ALWAYS!!! Always, the authors of the total destruction of the banking/investment systems were celebrated as geniuses and heroes...less than two years ago! I find that always, they are winners of awards and subjects of articles praising their incredible acumen and talented money-making skills. Note the 'we just DOUBLE-COUNT revenues' business: when I hear this sort of talk, I cling to my purse and begin to look for the cops. This is con-man talk. And lord knows, throughout my life, many a con artist has tried to deceive me.

CNN Money, April 11. 2006:

As you might imagine, the rewards for working at Lehman have been otherworldly over the past decade. But here, too, Fuld (who owns more than $300 million in Lehman stock) has an angle. His employees receive a disproportionately high percentage of their pay in Lehman stock and options. They are also typically locked up longer than their brethren at other firms (up to five years). There have been few complaints. When the company went public, employees owned 4% of the firm, or $60 million. Today they own some 30%, which amounts to $11 billion of employee wealth.

The fact that the main beneficiaries of Lehman's activities were its own employees is a DANGER SIGN. Instead of selling stocks and bringing in outside money as the corporation grew, it was all internal. And since most of the staff couldn't SELL these stocks...it was all CAPTIVE stocks! When employees were let go as the company floundered, they SOLD THEIR STOCKS. This, in turn, made stocks fall faster and faster which attracted those odious little critters, the naked short selling gnomes and their friends, the bears and raptors. Once this cycle took hold, it was all downhill.

Click here to see the really crummy, stupid Lehman Brothers web page:

Seriously! I go to many crummy, horrid, boring and stupid corporate web sites. Usually, to do a final burial before these awful web sites vanish forever. In this case, I swear to god, who do they hire? HAHAHA. I know some of the people. Gads. Shame on everyone! If I were working for that pathetic outfit, I would have come roaring into the office, yelling, 'Who the HELL put up those web pages!' But then, I am partisan. Family members do this for a living.

These pages are UGLY. A teenager doing Facebook could do a better job. The clip art is...I want to thank all my readers again, for helping me buy a great camera. If the President, Mr. Fuld me once, shame on me, he could have gone online to look at artwork. He could see instantly that the art in the web site run by his staff is pathetic and trite at the same time. And SMALL. Good grief. Are they aiming at getting people who have dial-up as their clients? HAHAHA. No wonder they went bankrupt!

A word of warning to all of the corporations that are going to die this year: please at least try to get a sensible, and even ARTISTIC web site up. Go visit Apple Computers to get an idea. Or read my own news service. I will gladly pass anyone who is seeking help, to someone who can fix this. Now, back to the main page of Lehman: They announce their impending doom.

LEHMAN BROTHERS ANNOUNCES PRELIMINARY THIRD QUARTER
RESULTS AND STRATEGIC RESTRUCTURING

Comprehensive Set of Actions to Significantly Reduce Commercial Real Estate,
Residential Mortgage and Other Less Liquid Asset Exposures

Intention to Sell Majority Stake in Investment Management Division

NEW YORK, September 10, 2008 – Lehman Brothers Holdings Inc. (ticker symbol: LEH), the global investment bank, announced today, in conjunction with its preliminary third quarter results, a comprehensive plan of initiatives to reduce dramatically the Firm’s commercial real estate and residential mortgage exposure, generate additional capital through the sale of a majority stake of the Investment Management Division and reduce the annual dividend, in order to maximize value for clients, shareholders and employees.

Chairman and Chief Executive Officer Richard S. Fuld, Jr. said, “This is an extraordinary time for our industry, and one of the toughest periods in the Firm’s history. The strategic initiatives we have announced today reflect our determination to fundamentally reposition Lehman Brothers by dramatically reducing balance sheet risk, reinforcing our focus on our client-facing businesses and returning the Firm to profitability.”

They crawled to the Federal Reserve and Treasury hoping for a trillion dollars. In gold, if possible. I keep saying, why can't the Fed and Treasury give this to me? I'm certain I could use about $50,000 of that to set up a really snazzy web page! And it could have the history of my organization. The pictures of the Board of Directors would be quite amusing since they are all mythological creatures! Since this would be government money, I would even invite Miz Liberty to join us!

The business about 'reducing the balance sheet' is particularly pathetic, by the way. Lehman's balance sheet is being reduced by demonic forces beyond the control of Fuld and his buddies. Every penny is being removed remorselessly. Normally, guys balancing sheets do it by killing off employees. Except for themselves. Dealing with the fundamental problems is not even attempted. In the case of all the dying banks this year, they collectively were totally irresponsible and 90% of their 'growth' was bad stuff. Not good growth.

Lehman Brothers reported a preliminary net loss of approximately ($3.9) billion, or ($5.92) per common share (diluted), for the third quarter ended August 31, 2008, compared to a net loss of ($2.8) billion, or ($5.14) per common share (diluted), for the second quarter of fiscal 2008 and
net income of $887 million, or $1.54 per common share (diluted), for the third quarter of fiscal 2007. The net loss was driven primarily by gross mark-to-market adjustments stemming from writedowns on commercial and residential mortgage and real estate assets.

Net revenues (total revenues less interest expense) for the third quarter of fiscal 2008 are expected to be negative ($2.9) billion, compared to negative ($0.7) billion for the second quarter of fiscal 2008 and $4.3 billion for the third quarter of fiscal 2007. Net revenues for the third quarter of fiscal 2008 reflect negative mark-to-market adjustments and principal trading losses, net of gains on certain risk mitigation strategies and certain debt liabilities.

During the fiscal third quarter, the Firm is expected to incur negative gross mark-to-market adjustments on assets of ($7.8) billion, including gross negative mark-to-market adjustments of ($5.3) billion on residential mortgage-related positions, ($1.7) billion on commercial real estate positions, ($600) million on other asset-backed positions and ($200) million on acquisition finance positions. These mark-to-market adjustments were offset by $800 million of hedging gains during the quarter and $1.4 billion of debt valuation gains. The Firm is also expected to record losses on principal investments of approximately $760 million.

In order to increase operating efficiency, the Firm has eliminated approximately 1,500 positions since the beginning of the third quarter in discretionary corporate areas and businesses that are in secular decline.

Capital Markets is expected to report net revenues of negative ($4.1) billion in the third quarter of fiscal 2008, compared to negative ($2.4) billion in the second quarter of fiscal 2008 and $2.4 billion in the third quarter of fiscal 2007. Net revenues from Fixed Income Capital Markets are expected to be negative ($4.6) billion, compared to negative ($3.0) billion in the second quarter of fiscal 2008 and $1.1 billion in the third quarter of fiscal 2007. Equities Capital Markets is expected to report net revenues of $0.5 billion, a decrease from $0.6 billion in the second quarter of fiscal 2008 and a decrease from $1.4 billion in the third quarter of fiscal 2007.

Investment Banking is expected to report net revenues of $0.6 billion in the quarter, a decrease from $0.9 billion in the second quarter of fiscal 2008 and a decrease from $1.1 billion in the third quarter of fiscal 2007. Debt underwriting revenues are expected to be $0.2 billion, a decrease from $0.3 billion in the second quarter of fiscal 2008 and a decrease from $0.4 billion in the third quarter of 2007. Equity underwriting revenues are expected to be $0.2 billion, a decrease from $0.3 billion in the second quarter of fiscal 2008 and $0.3 billion in the third quarter of fiscal 2007. Merger and acquisition advisory revenues are expected to be $0.2 billion, consistent with the second quarter of fiscal 2008 and down from $0.4 billion in the third quarter of fiscal 2007.

Investment Management is expected to report net revenues of $0.6 billion, a decrease from $0.8 billion in the second quarter of fiscal 2008 and the third quarter of fiscal 2007. Asset management is expected to report revenues of $0.4 billion, a decrease from $0.5 billion in both the second quarter of fiscal 2008 and third quarter of fiscal 2007. Assets under management are expected to be approximately $273 billion, down from $277 billion at the end of the prior quarter. Private Investment Management revenues are expected to be $0.3 billion, down from $0.4 billion in the second quarter of fiscal 2008 and consistent with $0.3 billion in the third quarter of fiscal 2007.

Banks are entities that CANNOT run in the red. The instant they do this, they vanish. They cannot be negative. Unlike governments or industries, even one quarter in the red is death. They can only run briefly in the red before being rescued by outsiders. The Federal Reserve dealt with ALL our major banks and lenders going in the red at the same time by lending money at rates far, far below the real rate of inflation. This was those 'windows' the Fed created out of thin air. The money they handed out was made up out of thin air. And the inflation this caused hammered the globe all this year. And is lurking in the shadows, Inflation's fangs drip with blood even today. Thanks to Mother Nature whacking a major oil facility/refinery sector this week.

Here is the 'bottom line' in the Lehman press release. It clearly shows that Lehman is in the red and fatally in the red. Note the top number which is all losses.

And here is the 73% losses in the last year:

Here is the last paragraph of the press release:

Lehman Brothers (ticker symbol: LEH), an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high net worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in
equity and fixed income sales, trading and research, investment banking, private investment management, asset management and private equity. The Firm is headquartered in New York, with regional headquarters in London and Tokyo, and operates in a network of offices around the world. For further information about Lehman Brothers’ services, products and recruitment opportunities, visit the Firm’s Web site at www.lehman.com.

HAHAHA. Opportunity is knocking! And to find out, all we have to do is visit their awful, stupid web site! Be bored to death! See how primitive and stupid Lehman's web designers are! And I shouldn't blame them! They had to do what FULD wanted. I know from family that the Presidents of these corporations are meddlesome and tasteless. Except for Steve Jobs. And they want to micromanage web designers. So the first designs were probably wonderful. And were whittled down and crushed until the present incarnation was spawned. And this is 'creative thinking' at the top: CREATIVE STUPIDITY. Or perhaps, Cretin thinking.

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Comments

[Investor Tool]

I agree banks cannot run in the red, unlike biotech companies.

[equityrelease6]

Confidentiality in the marketing process dealing with internal personnel and external sources is strongly encouraged and is critical to achieve a successful transaction. For the Seller's protection, Solutions Consultants Business Brokers requires a Buyer's Confidentiality Agreement to be signed by the potential buyer before the equity release of the Business Memorandum.

[Bruce Lewin]

Hi there,

Great piece! I've cited this in a follow up I wrote on Dick Fuld's leadership style. I tried to do a trackback, but I'm not sure if it worked or not, so I thought I'd say hello the old fashioned way!

btw, the piece is up at http://www.fourgroups.com/blog/archives/22/lehman-brothers-ceo-richard-fuld/ if you fancy a read.