For years Lehman Brothers was considered to be the best and the most stable firm on the Wall Street. It is a firm that has been in existence for more than a hundred and fifty years and is one of the oldest firms in the business. With the client base comprising of who's who of corporate
But since the fall of Bear Stearns, the only talk that was doing rounds was, “who is next”? And naturally the name of Lehman Brothers came to the fore as it was the next major player in the mortgage bonds. Since then the firm has been in the limelight for all the wrong reasons.
The day after the Bear Stearns incident, all eyes were on the ticker LEH on the NYSE.
The share price of the firm began to fall immediately. There were all kinds of rumors being spread that the firm is being taken over by some not so major banks and that some of the banks had issued memo’s instructing their clients not to do business with the firm.
Surprisingly all that news came after the firm had shown profits in the first quarter!!!!!
Since then there has been a slide downwards for the firm. The investors gave into their fears and there was frantic selling of the stock. Also the short selling of some traders on the basis of such rumors added salt to the injury. By the time 2nd quarter results were announced the firm had already lost a considerable amount of investor confidence in addition to the money as a result of huge write offs due to heavy loss making mortgage assets.
Come 3rd quarter and the rumors just kept on flowing. Not a day would pass by without the firm’s name being splashed in the news papers. The stock that was trading at $67 during the last quarter of last year was not hovering just above $20.
Then during the last week of the 3rd quarter came the final blow. Some unknown bank of
A few days later the same bank issued a statement saying that the talks had failed.
It sent panic all across the Wall Street, both within the firm and outside. Could that have been a gimmick by that lesser known bank to garner some publicity on the expense of someone big?
There is a popular saying that “No Korean would buy something that an American Investment Banker is selling in distress”.
In order to rectify the free falling tendency of the stock and to reassure the shareholders, the firm declared its 3rd quarter results the next day. It did not come as a shock to many that the firm posted the greatest loss in its history. The stock that was somewhere in the early 20’s now reached $8 at the end of that day.
The management also announced a few policies that would help the firm get rid of the loss making mortgage securities and would help generate some capital for future use.
But none of these measures could pacify the panic stricken investors.
All the major brokerage firms changed their ratings from “buy” to “sell” sending the stock in a downward frenzy. That week alone saw the stock fall almost 75% and hit the low of $4.
The current price of the firm is just above $3.5. The talks of selling just the asset management arm are now shelved and the time has come for the whole firm to be sold off if it has any intentions of surviving. Or could this be the end of a legacy called Lehman Brothers?
Well I would say “No”. The firm still ranks No 1 in the asset management business. It is a profit making arm of the firm and anyone who would buy it would do so with the intention of retaining it.
The firm still has major clients in the fixed income and equities businesses. The investment banking arm has grown stronger with every major deal that it did all through the crisis.
So even if Lehman is being tagged the next Bear Stearns, the core values and businesses of the firm remain strong. From the fact that the firm is still standing and the still doing well in the futures market, it can only be concluded that someone somewhere still sees the firm as a major player in the near future.
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