Lehman’s Efforts to Salvage Itself Come Up Short
- Sep 15, 2008
Only a week after posting multibillion-dollar quarterly losses, and unveiling a plan that would have spun off most of its commercial real estate assets, Lehman Brothers Holdings Inc. threw in the towel today by filing for Chapter 11 bankruptcy. The move came after the company spent the weekend trying to sell itself to either Bank of America or Barclays Plc. Both potential suitors said “thanks but no thanks” after it became clear that the federal government wasn’t willing to backstop Lehman’s troubled or otherwise hard-to-value assets. Lehman investors have already made clear their disdain for the company. From a 52-week high in November 2007–$67.73 per share–the company’s stock price has lately tumbled into penny-stock territory, trading today for about 15 cents a share. “The market has put an end to mortgage securitization as we’ve known it, and now we’re seeing the failure of the largest players in securitization,” Peter Kenny, managing director at Knight Capital Group, told CPN this afternoon. “But this is about much more than bad real estate loans. It represents a fundamental change in the management of risk. Risk, which was so poorly managed before 2007, will be managed as tightly as a steel drum going forward.” That management, Kenny added, will come in the form of a new regulatory structure for financial markets, created both by the federal government and by the industry itself. “In the long run, it will be good for the market,” he said. “This is a necessary adjustment the market is making in terms of pricing risk and punishing those who develop these engineered products that might be great hypothetically, but which in the real world represent a risk that investors will no longer be willing to take.”In a statement released this morning, the investment bank said that none of its broker-dealers or other subsidiaries are included in the filing, which will be made in U.S. Bankruptcy Court for the Southern District of New York. The company also said that it would continue with its plans to sell its investment management division as well as “a number of other strategic alternatives.” It is not clear at this point if that includes spinning off its real estate. Last week, as reported by CPN, the former Wall Street powerhouse acknowledged that it had written down $5.3 billion in residential and $1.7 billion in commercial real estate positions. Its restructuring plan would have established a separate holding company for its $25 billion to $30 billion worth of real estate.