From Deal Journal:...Lehman’s broker-deal subsidiaries would not be a part of the bankruptcy filing...bankruptcy lawyers say that customers are likely to receive their holdings back.Note we predicted that the authorities would lower collateral standards as a finesse for Lehman. This is a back-door bailout. Dow futures opened down 300 and S&P futures down 37, which would seem subdued ex the stealth provision of central bank support.
Moreover, changes to the bankruptcy code mean that counterparties to Lehman’s credit-default swaps can seize their collateral at any time, posing an enormous potential risk to the entire financial markets. Investment banks, hedge funds and other financial players labored throughout Sunday to offset their exposure to Lehman, moving their contracts to other firms.
Update 6:55 PM Reader Jim Bianco e-mailed this observation on the futures trading:It’s all about Merrill. They need to announce a deal with BAC before the open. If they do not, they plunge to $10 to $12 (from $17) on tomorrow’s open and no way does BAC pay $25 to $30. Then Merrill is at risk of blowing up and a crash becomes very possible.
So this is the way it ends. Not with a bang but a whimper–Lehman Brothers looks headed into liquidation.
Apparently, you can put dozens of Wall Street’s finest into conference rooms at the Federal Reserve Bank of New York, but they can’t rewrite an immutable law of human nature: people act in their self-interest.And it is in everyone’s narrow interest–except for Lehman’s shareholders, debt holders and employees–to see Lehman in bankruptcy proceedings.
Over the weekend, it has become clear that Lehman is a zero sum game. Slice it and dice it. Ring fence asset manager Neuberger Berman. Put the commercial mortgages into a separate vehicle. But the $53 billion of illiquid assets that Lehman has on its books are still bad assets.
Early on the Treasury Department made it clear the U.S. taxpayer doesn’t want these assets. Barclays and the Bank of America don’t want them either. So the Treasury has tried without success to convince Lehman’s Wall Street brethren to take them on.
But why should they?
Imagine you are John Thain, CEO of Merrill Lynch. Unlike Dick Fuld, who has held tight, in July you sold collateralized debt obligations with a face value of $31 billion at 22 cents on the dollar. But you still are capital constrained....MORE