Posted: 9/15/2008 12:02:34 PM EDT
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Can we say "tough nuggies"? Lehman Brothers Holdings Inc. (LEH: 0.19, -3.46, -94.85%) filed for Chapter 11 bankruptcy early Monday morning and said it will slowly wind down its operations after being in business for 158 years. At $639 billion, Lehman's is the largest bankruptcy filing in U.S. history--easily surpassing the Enron and WorldCom collapses combined. It also places the jobs of 26,000 employees at the storied firm in immediate jeopardy. Lehman decided to file for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court of the Southern District of New York. The company's broker-dealer subsidiary and other parts of Lehman was not in the filing. The Chapter 11 filing gives the firm time to liquidate its assets at the best possible price, bankruptcy experts said. The company's fall came after Lehman was not able find someone to come to its rescue. Over the weekend, Barclays PLC (BCS: 21.72, -3.46, -13.74%) and Bank of America (BAC: 27.30, -6.44, -19.08%), which were both reportedly interested in buying at least part of the firm, pulled out of negotiations. Both potential suitors reportedly found it impossible to absorb the firm without taking on too much of Lehman’s bad assets. “It’s shocking,” said one Lehman employee, who declined to be identified. “We all went into the weekend thinking it would be okay – somehow it would work out.” Shares of Lehman were down 90% to around 20 cents a share. A year ago, a share of Lehman would have cost $60. In a statement, the bank said its customers may continue to trade while Lehman is going through the bankruptcy process. The bank said it is still going forward with the possible sale of its investment-management unit, which includes the highly profitable Neuberger Berman. Lehman is also considering the sale of its broker-dealer operations. The fate of Lehman’s 26,000 employees worldwide was not immediately known. Several divisions were asked not to come into work today, and a multitude of images of Lehman employees with boxes of possessions saturated the major television networks. Sadly, like Bear Stearns, employees at Lehman Brothers were encouraged to own and aggressively purchase Lehman’s stock as part of their compensation packages. That paper wealth has now been destroyed. The best example might be Lehman Brother’s Chief Executive Richard Fuld. According to regulatory filings, the fall of Lehman’s stock has turned Fuld’s $740 million holdings as of Jan. 31, is now worth $2.5 million. According to the details of the bankruptcy filing, Lehman held consolidated assets totaling $639 billion and total liabilities of $613 billion. ($26 Billion to the good) The largest creditor to Lehman Brothers is Citigroup (C: 15.78, -2.18, -12.13%), which has $139 billion in bond debt, followed by The Bank of New York Mellon (BK: 37.74, -2.21, -5.53%), which had a combined $17 billion in bond debts with Lehman. In other liabilities, Japanese bank AOZORA loaned Lehman $463 million, while Lehman also has an outstanding bank loan with Mizuho Corporate Bank worth $289 million. Lehman marks the first bankruptcy filing by a Wall Street firm since the fall of Drexel Burnham Lambert in 1990. In anticipation of the filing, the International Swaps and Derivatives Association had an emergency trading session from 2 p.m. to 6 p.m. EDT on Sunday for dealers holding Lehman counterparty risk products. As part of its filing, Lehman hired bankruptcy law firm Weil, Gotschal Manges LLP to handle the filing. It’s the same law firm that handled the bankruptcy of Drexel nearly 20 years ago. The Securities Exchange Commission said in a statement that investors who own securities held by Lehman would not have their stocks or bonds seized in the event that Lehman Brothers files for bankruptcy. "We are committed to using our regulatory and supervisory authorities to reduce the potential for dislocations from recent events, and to maintain the smooth functioning of the financial markets," said SEC Chairman Christopher Cox in a statement. Also in a statement, the Commodity Futures Trading Commission Acting Chairman Walter Lukken said his organization is working "to ensure that customers of Lehman’s CFTC-regulated futures commission merchant are protected, and to take steps to maintain the stability and orderliness of the commodity futures and options markets." |
Rhett! Rhett! Whatever shall I do?! Wherever shall I go?! |
Frankly, my dear........ 
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I would have sold $100M as a buffer years ago. |
Then I gleefully eat my words. edit: a quick Googling reveals that it's not likely LB will receive any bailout... |
But you'll still pay in other ways. The Fed will probably cut interest rates so if you're a saver who's got money market accounts you'll recieve less interest. Credit will tighten up making it more difficult to borrow money. If you're a home owner, the already decreased value will be adversely affected. Got stocks or mutual funds? You'll be eating shit for a while as well. Probably gonna raise the unemployment rate a bit as well. Nobody is immune from the effects of the current financial crisis; everbody pays in one way or another. |
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The government can EASILY "afford" it - but they deliberately decided to draw a line in the sand, and not bail out any more i-banks, since it would set a really bad precedent and possible create perverse incentive and perpetuate overly risky decisions in the financial sector. |