Tuesday, September 16, 2008

Lehman/Merrill/AIG the Day After--What Crisis?!

Photo by bucklava

Not to say "I told you so," but notice that stocks are up the day after all of that hoopla broke on Wall Street (granted, not as much as they were down yesterday, but give it some time). If the biggest impact of this imbroglio on the "little guy (or gal)" will be a hit to the value of 401(k) and other retirement savings, the fact that stocks are already headed back up should come as a relief. And again, with crude futures headed toward the $90 mark, the economic future for Mr. and Ms. Average U.S. Consumer seems notably brighter.

In other good news, it looks like Barclay's is back at the Lehman bargaining table after all (as a surprise to no one who knows the Chapter 11 process). This breaking story from the W$J has it exactly right when it notes that shepherding the sale of Lehman's investment-management and capital-markets businesses through Chapter 11 allowed the parties to get what they wanted (walling off the toxic assets from the good ones) with less complication (and therefore probably a higher price). Would it be putting too sharp a point on it to call this "laundering"? By the way, if Barclay's is buying these crown jewels for $2 billion, one wonders how Lehman arrived at its $639 billion valuation of its assets, as mentioned in its bankruptcy petition (hat tip to CreditSlips and Steven Lubben). Indeed, could it be that Lehman was actually $20 billion in the black (in light of the reported $613 billion debt) when it filed yesterday (or at least as of May 31, 2008, the date of the valuation statement)? Doubtful. These valuation figures must be the sort of fairytale numbers that GAAP allows companies to get away with. For shareholders pouring over the Lehman petition hoping to find some ray of hope for a distribution, don't get your hopes up. The asset figure must be wildly on the high side, and though the Chapter 11 process will likely enhance the value that buyers like Barclay's are willing to pay for Lehman's "good" assets, the total kitty at the end of the day is likely to be nowhere in the region of $600 billion. The lawyers and other professionals who will have to manage this humongous case (ten times larger than Enron; six times larger than WorldCom) and sort out the millions of swaps, repos, and other complex contractual arrangements certainly will make out like bandits, though.

2 comments:

Chris said...

Nice article.
Thanx for posting.

retiredebtfree01 said...

Made to think! My personal opinion is that we are standing before a deep waterfall which is ahead of us. Today the financial crisis is somewhat like that. Is there any remedy for all these issues after wall street down?

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