BOA should buy LEH, I think it would be in the interests of the investors and a future outlook. Its the 2nd time this has happened to LEH but after all its an IBank, LEH is an excellent Brand and a titan that should be saved, the govt shouldn’t intervene however I do beleive the banks are not in a terribly bad position, losses incurred are still sustainable to some extent, one cannot notice the “bad aspects” and not look at the good for the long term. I do beleive this is a problem for 2years and it will teach the financial markets a good lesson in shoddy diversification. Current economic conditions are due to a host of reasons. And Paulson is letting the markets and the institutions work their magic. Sovereign funds coming in is good, it brings more dollars to a weakening market The Japs were here and now its Petrodollars, Come One Come all, Globalization brings creativity and its time to become far more creative and competitive than ever before. LEH Should be rescued and parked in an excellent umbrella.
if BAC buys lehman a year from now they themselves could be in lehman’s position. maybe bac, just like jpm enjoyed the advantages of having avoided the most toxic exposure to the cdo soup, but all that is gone with the acquisition of countrywide. countrywide is the same as indymac – a n entity whose almost entire portfolio consists of arms, hence desperately bankrupt with embedded losses equal to multiples of their capital. now it is unclear to me whether those 50-60 bn of losses will actually trickle down to bac (hence wiping out close to 1/2 of its equity’s book value), or bac can walk away losing just its investments in countrywide but at any rate i wouldn’t want to be in ken lewis’s spot when fed starts pressing him not to unwind a chapter 11 countrywide but to guarantee its liabilities. the countrywide acquistion was a horrible mistake (classic example of sending good money after bad) and worst case it can convert bac into another city (understand not exactly bankrupt but with its shares trading in the low teens) or best case damage bac’s reputation which runs counter to the idea of enlarging one’s footprint in any market. further let’s not forget that bac would need its capital cushion for the second round of this game, which involves the realization of credit losses from all kinds of consumer and commercial credit of which bac owns plenty (therefore even w/o countrywide bac is easily a teen dollar stock). to add to that any writedowns arising from lehman’s books will be outrightly suicidal. as other people who commented suggested the best approach is to buy unencumbered assets from bankrupt lehman or for that matter from any bank (no point to take ownership by buying the stock provided that (a) most bank stocks are not yet where they should be – in the single digits and (b) so many of the assets are fleeting – understand better give jobs to a number of stranded lehman employees and have them rebuild the business in-house).
regarding lehman with all their credit problems i feel they got unfairly penalized. who knows whether the credit losses wipe out their entire equity. on surface it looks like 1/3 of the common stock book value remains intact. however, i can point to a few examples of institutions who have worse fundamentals – take wachovia or merrill for example. citi is not that different and interestingly enough i thought lehman is a 12 dollar stock when morgan stanley looked like a 25 dollar stock (not 35+). unfortunately lehman became a victim of a classic liquidity squeeze because so much of their revenue stream which is non-credit related (and this is so valuable in this day and age) is nonetheless based on confidence in the firm’s survival – for example, their advisory and wealth management businesses. if someone were to buy lehman stock at where it trades today he has a shot at reviving the company (much better than buying an insolvent ncc or wamu). however, that strategic buyer must have deep pockets and clean balance sheet. accordingly of the potential suitors only the chinese bank and ealier the koreans qualified. bac, barclays or jc flowers simply don’t have what it takes to profit from lehman purchase….but then again all this is speculation, if i am interested in buying lehman today why not wait to pick the good parts off the carcass post liquidation.
I think BOA has plenty of its own problems to worry about. I’d agree that BOA would probably be better off buying Lehman Bros’ assets out of bankruptcy rather than taking the chance of getting steamrolled by its swelling liabilities.
Of course, if BOA wants to buy Lehman as is, then let them. I just hope the government isn’t connected to this in any way-no more government guarantees or cheap financing. If BOA wants to take the risk, fine. But let’s make sure it’s only BOA taking the risk.
The upshot of the current financial crisis is that we are seeing the result of monopoly, no oversight, no antitrust law and plenty o’ back-room dealing. Why do we have to keep re-learning this lesson?
So, Let Lehman collapse, let the whole thing collapse. What will emerge should be lean, mean and regulated.
I mentioned in a previous post and I will repeat the timely message again here… “TOO BIG TOO FAIL” almost always means that the concerns of taxpayers become “TOO SMALL TO MATTER”.
Vito, you raise an excellent point that I did not address in this column. If BofA does buy Lehman, one has to wonder if they will be able to support their dividend. The yield, at nearly 8%, is extremely high and as you point out, their payout ratio exceeds 100%. Lewis has been adamant about not cutting the dividend. But he may have to change his tune if BofA does decide to go ahead and buy Lehman. We will see.
Anyway, thanks to everyone who takes the time to post on this Talkback page, especially to many of you like Karen in Houston (hope you and your family are doing OK with Ike approaching), Sybil, Rob P., Mike in Redwood, Sam in NY and so many others who post fairly regularly. There are many others who fit that description and I thank all of you.
I know we don’t always agree on where the markets and economy are headed but I really do appreciate that you keep reading and take the time to post your thoughts on the Talkback page. I assure that I read all of them and highly respect all of your opinions.
So please keep reading and posting. Thanks again.
PRL
As an adjunct: Doesn’t anyone at a U.S. corporation have free cash flow anymore? Soon, the only corporations we know will be multinational–but foreign-based-and-owned. Don’t believe me? Ask yourself:how many Dubai-based transactions have occurred or have been attempted within the past year alone? How many Chinese sovereign funded transactions? Who will own our roads and infrastructure soon? I feel a wave of nausea
building inside the pit of my stomach…
Well, now that we’ve established NCAA loyalties , perhaps we should ask if Bank of America can even afford to pay its dividend out of current income (anticipated to be $2.43/share 2008;dividends @ $2.56/share). Taking on more debt (however cheap it might be for the U.S. Government,credit quality is eroding fast these days at financials) is not practical; similarly, a stock offering in such a hostile equity market is perhaps unpalatable. Maybe we can ask Washington Mutual instead (guffaw), or, more soberingly, J.P. Morgan Chase (once again).
who cares if loan-sharks buy each other and try to outfox each other,
as long as they keep their greedy hands OFF MY TAX DOLLARS!
It is a good idea for a bank to buy Lehman, but I’m not sure that BAC should do it; they are already cleaning house inside CFC, and who knows what problems will still be uncovered there. BAC survived the Great Quake of 1906 and the Great Depression, but this housing bubble and correction are worse. If I were them, I wouldn’t do it. Maybe, I would buy the assets (but not the liabilities) out of bankruptcy.
Now, given that Lehman cannot survive, someone should buy it at some price, even if it’s only a $1 (not per share). So, there should be some conditions:
Void all existing employment agreements;
Immunity from all lawsuits (shareholders, lenders, borrowers, everybody) after the deal is done;
A very low price to reduce risk and bake in some upside.
I’m sure that I could think of some conditions over the weekend, but the deal will probably be done before then.
There will be other banks to takedown, usually on Friday after the close.
Greg, are you serious? I am a Michigan grad who ALWAYS roots for OSU when they play a non-big ten school. I hope they KILL USC this weekend. I live in LA and would go to the game, but tickets are way too much. Anyways, I grew up in Columbus and used to be an OSU fan (cause that town forces you to be), but have obviously switched loyalties. You need to learn to root for your conference buddy. Save the hatred for when they play each other.
Only if you think stepping in front of a speeding freight train is a good idea!
Of course, BofA should not save Lehman, B of A is going to need their own saving soon enough.
Paulson is pulling the plug on Lehman. They’re toast. Bye, bye, Lehman.
I find it disquieting when the White Knights sniffing around the corpses of these battered financials include sovereign wealth funds from abroad.
But it’s better to have some healthy companies team up to absorb the risk of the ailing, since that looks a lot more like capitalism than when our government unilaterally backstops another loser.
What’s really frustrating is we can only sit and stare dumbly, aghast, as we open another vein and watch our cash flow to a different hemisphere.
Matthew, thanks for the post. Glad you like the column. Anyway, you could add a preposition there but my editors assure me it’s not absolutely necessary.
And Greg, your anti-Wolverine rants continue to amuse me. Sorry that I misspoke earlier this week about Wells. Looks like he’s not playing after all unless Tressel is trying to mess with Pete Carroll’s head.
PRL
Greetings from the West Coast Paul. I enjoy your column.
I believe you may have forgotten a preposition:
In addition, it’s beginning to look as if BofA wouldn’t be shouldering all the risk involved with Lehman. The Financial Times reported Friday that private-equity firm JC Flowers and the Chinese sovereign wealth fund China Investment Co. may team up with BofA on a joint bid for Lehman. That may be reassuring [to] BofA investors.
Well how lucky do ya feel fella? In all this excitement I forgot if I have $4Billion in bad debt or $14Billion in bad debt. Well how lucky do ya feel?
Hey Paul, better question, will oil be manipulated to be under $100 on 11/4/08?
In a related issue, the morons at the University of Michigan calculated people like paying for cheaper gas and are more “confident” about the economy (UofM Consumer Confidence rises to 73). NO WAY!! I wonder how CONFIDENT the Wolverines will be after they lose to a team tomorrow, that barely beat a team who barely lost to Cal-Poly Tech!! My favorite school besides the ‘ole horse shoe is whoever plays Michigan!
Anyhow, it doesn’t matter if BOA will save LEH. BOA has it’s own problems with Countrywide. Ken Lewis is “Sick and tired of investment banking.” LEH’s poor management has destroyed employees’ lives. I feel bad for them (even if they are Michigan grads). LEH will be cut into pieces and sold around the world.
GO BUCKEYES!! #1 National Champs!!
No, as a customer of BAC, do not buy Lehman. Let it close and be gone. People will only learn to stay with reputable banks if someone does not keep helping them out for bad mistakes. For the executives of Lehman… at least 10 years hard labor, no other choice… that way discipline will come back. Without discipline it is only the spiral downwards.