LEH had been known on Wall Street as a savvy investment bank with a clear eye in managing risk. How did they allow themselves to put so many eggs into the real-estate basket. Sub-prime, Alt-A, Commercial lending and direct ownership of speculative properties?? How did they stray from their core business of fixed income, investments and investment banking? See the article below:
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AP
Germany urges US to find Lehman Brothers solution
Saturday September 13, 9:23 am ET
Germany urges US to find solution for Lehman Brothers crisis before Asian markets reopen
NICE, France (AP) -- Germany called on U.S. authorities Saturday to find a solution for crisis-hit bank Lehman Brothers before Asian markets reopen for trading early Monday.
U.S. officials have so far talked down a government rescue for the country's fourth-largest investment bank, which is racing to find a buyer to raise badly needed money it lost on bad bets on real estate holdings.
Finance Minister Peer Steinbrueck -- who manages the EU's largest economy -- told reporters that "the news that is coming out of the U.S. is bad," confirming that financial markets are still suffering sharply from a credit crisis that started last year.
Observers who had prematurely spoken of "a light at the end of the tunnel" now had to make sure that they weren't facing an oncoming train, he warned. "We expect that a solution will be put forward before Asian markets open on Monday," Steinbrueck said on the sidelines of an EU finance ministers' meeting in Nice.
The Federal Reserve Bank of New York held an emergency meeting Friday night with top Washington policymakers and major financial institutions to discuss the future of Lehman Brothers.
Analysts say other financial firms may swallow portions of Lehman's investment banking or bond trading business. Considering the firm's deep financial problems, riskier assets like its mortgage and real-estate portfolios could be sold for just pennies on the dollar.
On Friday, Lehman's stock closed at $3.65 -- an all-time low and down nearly 95 percent from its 52-week high of $67.73 as investors grew more convinced that Lehman may be auctioned at fire-sale prices. The stock's plunge was a humiliating beating for the 158-year-old investment bank, one of Wall Street's oldest firms.
AP
What's worth saving at Lehman Brothers?
Saturday September 13, 5:54 pm ET
By Joe Bel Bruno, AP Business Writer
What's worth saving at Lehman Brothers if firm's assets split up by suitors?
NEW YORK (AP) -- With Lehman Brothers' survival in question, officials of major global banks and the U.S. government were in weekend negotiations aimed at resolving the investment bank's precarious financial situation. Wall Street CEOs were being asked to come up with a way to deal with Lehman's problems and avoid the risks they posed to the financial industry and the broader economy; one of the options being explored was a purchase of Lehman by one of its healthier competitors.
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Here are answers to some questions about Lehman Brothers Holdings Inc., and why other banks might be interested in buying some or all of its assets.
Q. Since Lehman's stock price has plunged 95 percent to just $3.65 a share this year, is there anything of the company worth saving?
A. Despite its badly damaged reputation, Lehman still ranks as one of the world's most respected securities firms. The company has leadership positions in stock and bond sales and trading, investment banking, and managing money for wealthy people and institutions. It also is a global franchise, with 28,000 employees in more than 50 offices in over 23 countries.
Q. Which of Lehman's businesses are potential suitors most interested in buying?
A. Its investment banking and trading operations routinely rank among the highest in the industry. For instance, Lehman is ranked eighth in the global mergers and acquisitions so far this year, advising on deals with a total value of $105 billion, according to financial data provider Dealogic.
The investment management business, which includes asset manager Neuberger Berman, is also a prized asset. Analysts believe it could fetch up to $10 billion in a sale.
Q. How much money was Lehman earning before the credit crisis disrupted the bank's earnings?
A. This year, Lehman's results have been marred by $6.9 billion of losses from its battered real estate portfolio and other risky investments. But, the company wowed Wall Street just a year earlier with record earnings and revenue. The firm made $4.2 billion in profit last year through $19.3 billion of revenue.
Revenues for the company's business selling and trading stocks and bonds hit $6 billion in 2007. The investment banking division posted $3.9 billion of revenue, and money management activities reported $3.1 billion of revenue.
Q. Then what caused all the damage?
A. Lehman has more than $60 billion of mortgages and asset-backed securities on its books. Those assets have been severely devalued because of the credit crisis that has hit almost all financial institutions to some degree. That's led to nearly $7 billion of losses and write-downs at Lehman this year.
A week ago, Chief Executive Richard Fuld hoped to save the bank by spinning off about $30 billion in rotting commercial real estate assets into a new publicly traded company. The balance of the real estate assets still left on Lehman's books were to be sold or written-down; a vulture investor would be a likely bidder for Lehman's distressed commercial real estate portfolio, buying the assets for just pennies on the dollar.
However, Wall Street signaled its rejection of the idea, sending Lehman's stock down by 75 percent last week, leading to this weekend's negotiations.
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In one of the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.
The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.
The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.
Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry’s reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.
The weekend’s once unthinkable outcome came after a series of emergency meetings at the Federal Reserve building in downtown Manhattan in which the fate of Lehman hung in the balance. In the meeting Federal Reserve officials and the leaders of major financial institutions were trying to complete a plan to rescue the stricken investment bank.
But as the weekend unfolded, Barclays and Bank of America, which had both considered buying all or part of Lehman, decided that they could not reach a deal without financial support from the federal government or other banks.
As a result, people briefed on the matter said late Sunday that Lehman Brothers would file for bankruptcy protection, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.
Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.
Lehman has retained the law firm Weil, Gotshal & Manges. The firm’s restructuring head, Harvey Miller, also spearheaded Drexel’s bankruptcy filing in February 1990.
As efforts to acquire Lehman faltered, Bank of America turned to Merrill Lynch and offered $50 billion in stock for that investment bank, people briefed on the negotiations said. The deal, valued at $29 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.
Merrill’s chief executive, John A. Thain, and Kenneth D. Lewis, Bank of America’s chief executive, initiated talks on Saturday, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, people briefed on the negotiations said.
Merrill’s 15,000 brokers will be combined with Bank of America’s smaller group of wealth advisers. The entity will be run by Robert McCann, the head of Merrill’s global wealth management business.
Mr. Fleming, Merrill’s president, will be president of the combined bank’s corporate and investment bank while Thomas Montag, a former Goldman executive who started at Merrill in August, will head all the merged company’s all risk, trading and institutional sales.
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, all but assuring that Lehman would be forced to liquidate.
The overarching goal of the weekend talks had been prevent a quick liquidation of Lehman, a bank that is so big and so interconnected with others that its abrupt failure would send shock waves through the financial world. Of deep concern is what impact a Lehman failure would have on other securities firms, insurance companies and banks, which have come under mounting pressure in the markets.
Even as Lehman and Merrill played out, the insurance company, the American International Group, was planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company’s strategy said on Sunday.
A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades.
It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing.
Among the businesses likely to be sold is A.I.G.’s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.
Investors, afraid that A.I.G. would have to absorb further write-downs in its already damaged mortgage securities and collateralized debt obligations, have driven down the company’s shares in recent days. The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.
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