Update on Lehman, weekend meeting, courtesy of Mish (not a fan of bottom-fishing in Lehman).
Unusual Weekend Meetings At Lehman
CNBC is reporting Lehman’s Weekend Meetings Raise Questions.
Senior executives at Lehman Brothers, the embattled Wall Street securities firm, have been summoned this weekend for a series of meetings as the firm prepares to release second-quarter earnings on Monday and speculation swirls that the firm may be sold to a larger bank, CNBC has learned.
Lehman Chief Executive Dick Fuld has been working overtime to restore investor confidence in the firm a after some investors believed they were misled about the size of the firm’s losses and need for new capital. Because of the eroding investors support, and damage stemming from the firm’s financial troubles, speculation is growing that the firm might have to be sold. CNBC reported that private equity firm Blackstone is interested in taking a stake in Lehman. Other firms have expressed interest in buying Lehman as well. Only after the reports of a possible sale, did shares of Lehman reverse a week-long slide.
The weekend meetings are unusual, say people close to the firm. The executives summoned to headquarters include everyone from Stephen Lessing, the head of Lehman private client group to Scott Freidheim, the firm’s co-chief administrative officer. It is unclear if the meetings are related to a possible deal, or just preparation for the Monday’s official earnings announcement, possibly the most important earnings release for Lehman in recent years.
Blackstone A Savior?
Blackstone got heavily involved in purchasing commercial real estate from Sam Zell at the tip top of the commercial real estate market, and now it is rumored to be bottom fishing for Lehman.
I scoff at the notion that Blackstone will be some sort of savior for Lehman. Indeed, I wonder if Blackstone has any idea of what it is doing at all. Blackstone is certainly not firing on all cylinders lately. Is it firing on any cylinders? Inquiring minds may wish to consider a Vital Lesson From Blackstone.
Blackstone IPO
The Blackstone IPO went off over $30 per share and has been straight down ever since.
Blackstone (BX) Weekly Chart
click on chart for sharper image
Credibility Issues
Credibility Issues Haunt Lehman, and credibility issues surround Blackstone as well. Therefore I simply have to question whether or not such a deal would make any sense for either party.
Bloomberg is reporting Lehman CEO Fuld Finds What a Difference a Week Makes.
Fuld, 62, stunned Wall Street on June 12 by replacing Chief Financial Officer Erin Callan and President Joseph Gregory in an effort to reassure investors amid speculation that mortgage-market losses will continue to drag down earnings. The demotions capped a 42 percent drop in Lehman’s shares on the heels of a $6 billion cash infusion.
"We have confidence in the firm, in the leadership," BlackRock President Robert Kapito, 50, said yesterday in an interview. "They have a history of being a team, a place of focus, of working out their situations, of having confidence in the marketplace."
"Based on our research and first-hand experiences with the company in a variety of areas, we have a high regard for Lehman’s business lines and management team," the New Jersey Division of Investment said in an e-mailed statement. "We are pleased to have the opportunity to increase our investment."
The New Jersey pension fund bought $120 million of Lehman common stock at $28 a share, and $60 million of preferred shares with an 8.75 percent dividend.
Kevin Cronin, Putnam’s head of investments, predicted Lehman would rebound. Putnam is Lehman’s 16th-largest shareholder, according to Bloomberg data. The Boston-based mutual fund firm has bought Lehman bonds, stock and convertible shares in previous offerings this year.
"We’re holders of all levels of their capital structure," Cronin, 47, said in an interview. "The market has unfairly punished the price of their stock and bonds. We know they’re going to be winners in the long run."
I remain skeptical of all those glowing comments from bottom fishers, and I still question the viability of the company itself. This is not a call for bankruptcy. Rather it is a call that Lehman will not stay together in one coherent piece.
Last week was a Wild Ride In Lehman, Financials. Next week just may be more of the same. One thing I do know for certain is that the world’s largest experiment in creative financing has failed miserably. The fallout has just started. Bottom fishing at this point is likely to be punished severely.
