Lehman Survival Questioned Scramble to Sell Assets - Lehman: Contrarian View
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CONTRARIAN VIEW
The Lehman worries were not just affecting the stock. Its credit
protection costs soared to a record, and some of its bonds traded near
distressed levels.
Lehman's bond prices tumbled, sending some yields well above levels
widely considered as distressed. Its 4.25 percent notes due in 2010
were yielding nearly 22 percentage points more than Treasuries -- more
than twice the level that traders consider distressed -- according to
data from MarketAxess.
Five-year credit default swaps traded at 768 basis points Thursday,
or $768,000 a year to protect $10 million of debt, widening 188 basis
points from Wednesday's close, according to CMA DataVision.
On the commodities side, nervous futures clients of Lehman were
pulling out their money. Lehman lost 22 percent of its Futures
Commission Merchant assets last month, data from the U.S. Commodity
Futures Trading Commission shows.
"CFTC data confirms clients are pulling assets," JP Morgan equity analysts said in a research report late Wednesday.
But not everyone on Wall Street was ready to bury the firm.
"I would tend to want to bet in opposition: that Lehman not only
survives, but that it certainly has a business model that works,
excluding some of the stuff it used to have," said Robert Albertson,
chief investment strategist at Sandler O'Neill & Partners.
WHITHER FULD?
Lehman's growing problems have led to questions about CEO Fuld and his strategy to get the firm on more solid footing.
"What you have is a loss of confidence in management, and they've
got to start doing things instead of saying they're going to do
things." said William Smith, president of Smith Asset Management in New
York. "I'm in shock as to how Fuld let this get away from him. From
what I understand, the guy was a great executive for three decades."
Fuld won a reputation as a survivor and top-notch leader since
coming to Lehman as a trader 30 year ago. He endured in-fighting that
led to the company's sale to Shearson/American Express in 1984 and was
running Lehman when it was spun off -- undervalued and unwanted -- in
1994.
Fuld was considered one of Wall Street's ablest CEOs and was also
one of Wall Street's best paid. In most years, he took home bonuses on
par with those paid at much-larger rival Goldman. Last year, he
received $22 million in compensation.
"Historically, Fuld has been someone you don't bet against when
times get tough. This time, things may be too tough," said Holland.
"The stock price is saying that."
ANALYSTS' CALLS
Goldman downgraded Lehman to "neutral" from "buy," and removed the stock from its Americas buy list Thursday.
"Management did not successfully put to rest the issues that had been pressuring the stock," William Tanona of Goldman wrote.
Oppenheimer's Meredith Whitney said Lehman's initiatives were a
"step in the right direction," but she continued to expect a tough 2008
for the investment bank.
Lehman faces challenges to earnings, given difficult capital markets
for the next several quarters and potential write-downs of its
remaining risk exposures, Whitney said.
(Reporting by Joseph Giannone, Doris Frankel, Jonathan Spicer,
Elinor Comlay, Alden Bentley, Dena Aubin, Sweta Singh, Juan Lagorio,
Dan Wilchins, Walden Siew and Ellis Mnyandu; Editing by Steve Orlofsky
and Jeffrey Benkoe)
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