Buyers circling Lehman, but federal help is a question

From Times staff writer Walter Hamilton

Who wants to buy Lehman Bros.? And with what kind of government help?

Those questions dominated Wall Street today amid rumors that the struggling investment bank had decided to put itself up for sale, after investors reacted negatively to the firm's restructuring plan unveiled Wednesday.

Lehman’s shares plunged as low as $3.79 and ended at $4.22, down $3.03, or 42%.

The company’s stock market value now is just below $3 billion -- making an acquisition feasible for a range of potential suitors, particularly if the federal government intervenes to grease a sale, as it did with Bear Stearns Cos.’ sale to JPMorgan Chase & Co. in March.

"It’s a great play for somebody at this price," said Dan Alpert, managing director at Westwood Capital, a New York-based investment bank.

The leading contenders are believed to be Bank of America Corp. and British banks HSBC Holdings and Barclays. But other European, Japanese and Middle Eastern banks aren’t out of the question, analysts said.

The Wall Street Journal said Bank of America appeared to be loss-ridden Lehman’s best hope. Neither BofA nor Lehman would comment.

The Washington Post said the Federal Reserve and the Treasury were "talking to a wide range of firms and examining multiple scenarios" to assist in the sale of Lehman. It wasn’t clear whether "assist" meant government aid would be involved or the feds would simply help broker a deal.

However, sources told The Times that government aid was unlikely to be forthcoming.

WIth a $3 billion market value, Lehman could be in the cross-hairs of a private-equity firm such as Blackstone Group or money-management giant BlackRock Inc., said Richard X. Bove, an analyst at Ladenburg Thalmann.

"They’ve got to sell the company, and they’re definitely going to sell it," Bove said. "My guess is within two weeks we will have a buyer."

But the continuing dive in the stock, despite the buyout rumors, indicated that investors doubted a buyer would pay much more than the current price.

The major risk for a suitor is that Lehman could suffer greater losses on its giant real estate portfolio -- the root of its troubles. So to get a deal done, buyers might demand that the government guarantee some of Lehman’s troubled assets, as the Fed did to entice JPMorgan to swallow Bear Stearns.

Naturally, the number of potential bidders would jump if the government offered help, analysts said.

The argument for federal assistance is that the collapse of Lehman -- a 158-year-old Wall Street institution -- could cause a domino effect in the financial system, given the extent of its investment holdings and its lending relationships with many other banks, brokerages, hedge funds and other players.

But a government-assisted sale of Lehman could spark a political firestorm, just days after the Treasury seized mortgage giants Fannie Mae and Freddie Mac and agreed to invest up to $100 billion of taxpayers’ money in each firm to keep them solvent.

What’s more, Lehman doesn’t appear to be in the same dire financial straits that Bear Stearns was in March. Other investment banks say they continue to trade with Lehman. And all big brokerages now have the ability to borrow short-term money from the Fed, a concession the central bank granted after Bear's near-collapse.

Photo: Outside Lehman Bros.' headquarters in Manhattan. Jin Lee / Associated Press

Comments

[angry investor]

Goverment help?
What about millions dollars as year end bonus they were taking.
Instead asking for government help, they should cough up those money they took.

[JM]

I once interviewed with these folks, and found them to be a bunch of pompous louts for the most part. Connected, good ole boys from all the right schools. I'm kind of glad they're going through this. That goes for all the Citibankers, Merrill Lynchs and all the good ole boys who have really screwed it up for our country. The investment banking community brought all this on us with plenty of help from undereducated mortgage lenders, who were all on the greed train. It will sort itself out eventually and I hope all these investment bankers who can't wait for their next bonus checks, choke on what they've created. Your all a disgrace to modern corporate finance. Perhaps the B Schools will teach more than just ethics courses to the next batch of junior b schoolers. I enjoyed my career with in corporate finance and was able to steer well clear of the cretins who brought this on us. Perhaps our esteemed SEC commissioner, another Harvard type, can do something pro-actively for a change, to prevent the next meltdown. What a disgrace!! Alan Greenspan did nothing but issue warnings, another fraud....and the list goes on and on...........

[Maggie Knowles]

Yeah, a bunch of rovian frat boys took over the country and hooked a couple of siphons to the U.S. Economy and sucked it dry... almost. I guess they'll suck all they can before Bush is finally out of office. I bet they're hoping McCain/Palin wins. I heard she said she's ready to be president.

Makes me wanna vote for Obama.

[Maggie Knowles]

Mission is getting accomplished!

BushCo ;)

[Illinois]

well, if their stock is at 4.00 now, it would be a good time to buy. A year from now, once it has been merged, the stock woudl pop up to 25.00 or 30.00. Time to do a little E trading.

[Tombstone Realty]

So let me get this straight - my tax dollars are going to help all these companies stay afloat, that screwed themselves with an unmatched greed.....

Yet when I hold off on using my credit cards, y'know fiscally conservative and all that - MY credit rating gets dinged!?

I have a better credit rating that half the S&P at this point.

[BeefMasterX]

I hope Maggie reads the comment by Illinois. It is important for partisan hacks like Maggie to understand that Wall Street is more powerful than Pennsylvania Avenue, and the person in the White House is subject to the reality of the markets.
Opportunity is knocking Maggie, and while you're buying stock, load up on some American energy producers.

[martscan]

How could anyone in their right mind vote for unprincilpled, no integrity, non-hero, characterless MCain with his economic mentor, Phil, country bumpkin lazy fairy econ professor turned multi-millionaire, Gramm...who bears a lot of responsibility for this mess with his Gramm-Dingbat Act and a radical, right wing fundamentalist piece of dreck who believes in a U.S. theocracy is beyond me.

[Maggie Knowles]

BeefMasterX

"Wall Street is more powerful than Pennsylvania Avenue..."

That's why we're in this mess.

[martscan]

BeefMasterX:

First, I take exception to your characterization of Maggie as a hack. She is entitled to her opinion as well as you...though yours are worthless. Secondly, Illinois's opinion is almost as ridiculous as yours. Lehman is toast...it will be taken over for under $5B..or it will be hacked up piecemeal. What happens to LEH stock...when it becomes non-existent? How can anyone possibly determine how long it would take a buyer to digest it?

Regarding the power of the WH v the Street...as Bush is nothing but a messianic tool of the corporacracy...you are right...but that is not to say the presidency doesn't have power to effect control over the Street. In fact, had we not had the wanton deregulation that allowed greed to win over fear..risk...we might not be in the mess that we are. Further, one need no more evidence of the power of the WH...than to see the Street run for protection to the Fed and the Treasury minions that a strong president would control...not this phony MBA that sits in the Oval office and communicates with snakes, er, ah, I mean God. Bush couldn't carry Paulsen's jock strap, but Clinton could at least communicate with, and understand, Bob Rubin. And, your "reality" of markets obviously doesn't jibe with the supposed "reality" of true free markets, wherein Darwinian aspects of capitalism would operate in place of the "Billionaire Socialism" that this administration practices. You'll see just how much power a president has, vis-a-vis Wall Street, when Obama...and payback...is president.

Sell FCV8 on rallies.