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Behold what? Your outrageous collection of nose hairs?
What I am beholding is the fucululation of the amero in the overnite. This is not good for the carry traders, the futures will not be happy either.
Weiss has been saying the same for 30 or 40 years. Gets it right about every 20 years. He’s a bright guy and outlines the current situation nicely here:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1453
Fly, thanks for introducing me to the UltraShort ProShares, especially SKF.
Heh? Oil? Gold? Tell me, you well dressed, debanair, suave, sage.
Heh? Oil? Gold? Inflation? I’m behodin them all.
They Fly plants WSJ story to take down LEH. And he uses Peter Eavis, who is probably the best financial sleuth reporter in the biz
HEARD ON THE STREET
Now, Lehman Gets Pelted
Firm Seemed to Outrun
Fallout of Credit Crisis,
Until One Market Slid
By PETER EAVIS and SUSANNE CRAIG
February 19, 2008; Page C1
Many investors have been surprised at the ability of Lehman Brothers Holdings Inc. to navigate the credit crunch, given the size of its exposure to potential land mines.
But there are growing signs that the New York investment bank’s latest quarter will be the rockiest since the mortgage crisis began. Behind the worry: Lehman is sitting on a big pile of commercial real-estate loans, and that market is deteriorating, potentially causing bigger-than-expected write-downs.
In recent weeks, credit markets have worsened, and Lehman believes it is now facing a write-down in the $1.3 billion range, according to people familiar with the matter. That has risen from a recent estimate of $800 million to $1 billion, and from a $830 million write-down in the fourth quarter.
Lehman’s anticipated write-down is a far cry from those in the multibillion-dollar range at rivals such as Merrill Lynch & Co. and Citigroup Inc. that have toppled chief executives and put those firms into the red. And chief executives such as Lehman’s Richard Fuld Jr. and Goldman Sachs Group Inc.’s Lloyd Blankfein have won plaudits for their ability to miss the potholes that Merrill and others have hit.
Still, a larger-than-expected write-down would demonstrate that even firms that seemed to have side-stepped major hits are finding it hard to navigate this increasingly difficult market.
Analysts covering the brokerages have taken an ax to their first-quarter earnings estimates in recent weeks, and Lehman hasn’t been spared. According to Thomson Financial, analysts are now forecasting the brokerage will post a profit of $1.48 a share in its first quarter, which ends in two weeks, down from the $2 they predicted three months ago. Larger-than-expected write-downs are a big driver behind the estimate cuts.
And Lehman shares, which closed at $54.77 Friday as of 4 p.m. in New York Stock Exchange composite trading, are down 16% so far this year, compared with an 11% drop for the Dow Jones Wilshire U.S. Financial Services Index. Lehman’s stock is down 11% since July 31 last year, when the credit crunch started to erupt, compared with declines of around 30% for hard-hit rivals such as Merrill Lynch, Morgan Stanley and Bear Stearns Cos.
Lehman, one of Wall Street’s major bond firms, for years did a big business originating mortgages and then packaging and selling them to investors. Lehman has prided itself on its ability to shift assets off the firm’s balance sheet. But as current markets deteriorate, the brokerage finds itself with more than $90 billion of debt securities and loans that are potentially vulnerable to markdowns. The firm reports first-quarter earnings in mid-March.
Nearly $39 billion of those holdings are commercial real-estate loans. Even as it cut way back on making home loans, Lehman continued to lend to buyers of office buildings and other assets. In the fourth quarter of fiscal 2007, ended Nov. 30, Lehman originated $15 billion of commercial mortgages, in line with the average origination in the previous three quarters.
Yet, the firm only sold off $1.5 billion of those loans, compared with more than $10 billion in the third quarter. As a result, its commercial-mortgage holdings have swelled. Now, analysts wonder how much they will have to be marked down.
Concerns about potential losses in this portfolio were exacerbated a few weeks ago when Lehman announced that Roger Nagioff, global head of fixed income, had resigned. The firm said it was for personal reasons; Mr. Nagioff was commuting from London to New York City, and the travel was taking a toll on his family. Mr. Nagioff couldn’t be reached for comment.
Lehman also has significant exposure to so-called Alt-A mortgages, which let borrowers disclose less information about their income than standard mortgages. These loans have been under increased stress in recent months as delinquencies have risen as a rapid rate.
After 10 months, 8% of Alt-A adjustable-rate mortgages made in 2007 industrywide are more than 60 days past due, according to data from information firm First American CoreLogic. In the first nine months of last year, Lehman was the third largest originator of Alt-A loans, with $18 billion of them made, according to data firm Inside Mortgage Finance.
Overall, the bank has about $37.3 billion in residential mortgage exposure. The bank hasn’t disclosed how much of the mortgage exposure on its balance sheet is Alt-A or how much fell into the category of Alt-B, a type of mortgage made to borrowers whose credit was above subprime levels but below Alt-A.
Still, some investors aren’t concerned. “We’re comfortable with the residential mortgages,” said Thomas F. Marsico, manager of the $3.1 billion Marsico Growth Fund, which held 918,000 Lehman shares as of Sept. 30, 2007.
In prior quarters, Lehman executives have said the firm’s residential-mortgage positions were fairly well-hedged, meaning Lehman has placed trades so that losses on that portfolio would be offset by gains elsewhere. However, the deteriorating commercial-mortgage market will test how well the firm has hedged this type of asset, which might lead to bigger losses in this portfolio as the market worsens.
This month, Lehman issued $1.9 billion of preferred stock, a move some analysts read as a move to strengthen the balance sheet as the firm anticipates future credit-related losses. Lehman Chief Financial Officer Erin Callan said it was part of the firm’s normal capital-raising plan. “It has no connection to any write-down experiences or expected write-down experiences,” she said.
Lehman is no stranger to questions about its ability to weather this credit swoon, yet doubts remain simply because the firm’s debt holdings are substantial. In addition to holdings of residential and commercial real-estate loans, Lehman held $12.8 billion of loan commitments to junk-rated borrowers at the end of the fourth quarter, as well as $4 billion of leveraged-buyout commitments as of Feb. 6.
Together, that comes to $93 billion, which is “sizable” compared to Lehman’s equity, Banc of America Securities analyst Michael Hecht wrote in a research report. He rates Lehman “neutral,” which is equivalent to “hold.”
Mr. Hecht calculates that Lehman’s tangible common equity — an often-used capital measure for financial firms that excludes intangible assets such as goodwill and preferred stock — was $18.6 billion at the end of November. Even a relatively small percentage decrease in that $93 billion could gouge out a substantial chunk from the firm’s tangible capital.
Write to Peter Eavis at [email protected] and Susanne Craig at [email protected]
Meanwhile LEH is up Fitty Cent in the premarket.
WTF?
Thankfully, so are all my silver and gold baubles.
You wouldn’t trust a cop’s daughter?
Behold my fine leather shoes on your back as you tumble down a flight of stairs.
This gap will probably be faded but you bears are going to seriously need to rethink your strategy if we get a close above 1384 on the SPY this week.
Thanks Jake.
My wife walked past right after I clicked the link. She now thinks I’m shopping for a new wife! 🙂
Juice,
I like how I heard about those balance sheet woes before that article was printed. I said +/- $50b in commercial real estate loans. article says only $39b, but what’s $11b of shit amongst friends?
“now analysts wonder how much they will have to be marked down.”
a lot, you stupid analysts
What are we beholding?
Dog.. click on a pic of Meg Whitman to allay your wife’s concerns
Geez, Dawg, it wasn’t even “Myspace.”
She’s a bit “pinched” for my tastes, anyway, but I’m partial to the name.