Friday, September 25, 2009

News deflation

Consumers will not pay for news. Period.

Newspapers were able to charge for news because they provided essentially a monopoly service before TV and the Internet. Now, there's so much news from so many sources (many with purely ad-supported business models) that there's always a free option to turn too. Turns out, most news is a commodity.

Thursday, September 24, 2009


So Twitter is now worth $1 Billion More...

Tuesday, September 22, 2009

Deflation News

Despite everything the fed is doing, the money supply is falling. Fewer dollars should mean falling prices. More...

Apple Truthiness Flowchart

Did Apple block the Google Voice app for the iPhone? Apple is not sure. More...

Friday, September 18, 2009

This week I appeared on NTV Japan to talk about the President's speech to Wall Street. More...

Tuesday, September 15, 2009

One Year Ago - Tuesday September 16th, 2008 3pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Lehman employees celebrate]
Hollywood Ending!
Originally written Tuesday September 16th, 2008,3pm

Sweet Jesus, what a roller coaster ride!

At 2:21 we all get an email saying "come to 2, there will be an announcement." Well the only way to get to 2, where the entire floor is a vast open space for trading, is to go to the lobby and then wait for the elevator to take you up one floor. So there's a massive traffic jam and I arrive just in time to hear Bob Diamond, the American who runs Barclays Capital, announce "Welcome to Barclays!" I don't know any details but I'm sure a lot of people who were in that room will still see pink slips in the next month or two. But the WSJ and others are reporting this action saves about 10,000 US jobs. Hooray! .

One Year Ago - September 15th, 2008 10:50pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Lehman stock hits 25 cents]
A White Knight?
Originally written Monday September 15th, 2008,10:30pm

The Wall Street Journal is reporting that a deal for Barclay's to buy most of Lehman's US operations could be announced shortly. The deal would preserve a lot of jobs, help New York City, and throw the rest of Lehman proper (including overseas operations) into immediate liquidation.The question of what to do with the $85 billion of toxic mortgage assets would still loom, but I think the Fed's new rules allowing banks to put up a wider set of assets as collateral to ensure overnight liquidity could conceivably do the trick and would be unlikely to be played in the press as a "bailout of Lehman by the Feds." It will be more like "Brits to the rescue. Elegant solution to a lot of problems and it saves face for the Feds.Still unclear how "real" this is or whether it would be approved by the judge in charge of the chapter 11 filings. For Barclay's, it’s a huge bargain if they contain the mortgage risk to acceptable levels. It means that the top people at Lehman who've been negotiating up until this point are history, I assume. Stay tuned More...

Monday, September 14, 2009

One Year Ago - September 15th, 2008 7:30pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: "Lehman Brothers" stripped from a podium]
Tales From the Crypt II
Originally written Monday September 15th, 2008, 7:30pm
So here we are after a day of controlled turmoil in the markets and what is certainly a difficult period ahead. Thankfully things have been orderly but to my mind the real test comes if Lehman has to fire sale some of the mortgage assets it has that every other bank has but have not been able to place a value upon because these are assets that are frozen because no one really knows what they are worth.When I left Lehman at 4pm it was clear that pink slips had been issued to whole departments and divisions - but not ours (yet). The Crypt is full of rumors that Barclay's is interested again and even B of A is exploring some complicated three-way deal involving the best of Merrill and the best of Lehman, but nothing may come of this.I expect that I will quickly learn whether I have some sort of job and, more importantly, whether my contract will be honored. I'm "fine" in the worst case (i.e., unemployed and uninsured by Wednesday) but very fortunate in the latter case. As I read the internal announcements, the latter is not out of the question and the former seems quite harsh (I think there's some sort of severance even for new employees). It all depends on how quickly a deal can be signed and to what extent key people have already got offers. I got many headhunters calling today, but they are trolling for experienced research analysts and I am not that. On the plus side there appears to be demand for my experience and not many "me's" are going to be laid off from Lehman since I'm not a Wall Streeter, really.Plus I can collect unemployment for up to six months - about $1800/month it turns out - which seems pretty decent all things considered.I got an official email asking me to report to work tomorrow at 8 for business as usual. And that's what I'll be doing. I suspect the media will have moved on. :)

One Year Ago - September 15th, 2008 2pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Reporter outside the crypt]
Tales From the Crypt
Originally written Monday September 15th, 2008, 2pm

I've been in and out of the building three times this morning and on the second time one of the reporters spotted my name tag and started shouting out my name "Alan! Alan! Any comment?" I ignored him. When I came out about 30 minutes later, however, the SAME guy spotted me and began yelling "Alan! Alan! Over here!" and in 3 seconds 40 reporters with cameras and microphones were following me down 7th Avenue yelling "Alan! Alan!" Then all these tourists spotted them following me so they started following me and snapping pictures and babbling in Italian. I sort of enjoyed it. It was very difficult not to respond but no good can come of it and I look like I haven't slept much for some reason. :) So, the official line is we are open for business and fully cooperating to ensure as orderly a wind-down process as possible. There is clearly interest from different parties in buying the equities business, where I work, but it is a shrinking asset. We have about 100 clients who matter and we're holding their hands very closely and doing anything they want right now (plus none of them wants chaos, either). This is something we can probably do for 2-3 days max before they say enough is enough and our franchise is worth nothing. Dick Fuld seems to have overplayed his hand and we now see that the Fed has in fact created a MUCH huger moral hazard with all its actions last night, but the headline "Lehman declares bankruptcy" is a very good one for investors and the US economy in general and a coup for the Feds. I hope this action plus the purchase of Merrill are enough to stop all the madness. Capitalism requires pain, and the pain is never evenly distributed. I've always argued that it's tough luck for midwestern factory workers whose jobs move to China forever as long as we give them a safety net of unemployment insurance, social security etc so I'm getting a taste of my own medicine and that's fine. I would be surprised if there is a buyer (there are lots of rumors) although it's amazing who comes out of the woodwork when a company that cost $2.5 billion on Friday is worth $160 million today. A week ago - at my debut - it was worth $9.7 billion. The day I started, May 12, it was worth $31 billion. A year ago it was worth $47 billion. Now, I have friends who could buy it, fer chrissakes! :) The biggest threat to the economy now is what happens when the bankruptcy turns from a Chapter 11 to the Chapter 7 version if Lehman cannot sell any of the good parts in the next few days. Chapter 7 could force them to sell the mortgage-backed assets at probably a few cents on the dollar. If that happens, every other financial institution in America will have to use that price to set a value on the similar assets they all hold. This will create a paper loss for the entire sector in the hundreds of billions of dollars - and a dramatic contraction in the money supply etc. It could be 1933 all over again. I am certain the Feds are looking at options where they take over Lehman's bad assets rather than let them be sold openly. It won't generate the headlines that "bailing out" Lehman would have. The mood? People are crying, hugging etc. I am awkward because the team I joined has been together for 7 years and many of them have worked together far longer (like 19 years). Plus most of them were wiped out financially. Most have small children. So I'm there but not "there." Very sad. More later. More...

One Year Ago - September 15th, 2008 1:30am

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Potrait of Dick Fuld, Lehman's CEO]

Last Lehman - For Tonight
Originally written Monday September 15th, 2008, 1:30am (Sunday Night)

I just got home from Lehman HQ which is a combination of an office building being sacked by employees grabbing as much as they can carry coupled with a media circus. I have photos I'll post when relevant and safe to do so. Lehman is filing for Chapter 11 bankruptcy and we have officially been told that tomorrow we work business as usual. I think they want to see whether Lehman is too big to fail or not and go from there. A lot of clients have reduced their exposure to Lehman already and may stick around only to prevent an outright complete collapse or to force the Fed's hand. I think once the Fed made a much larger credit facility available to investment banks late Sunday night, Lehman decided to go for this unexpected Hail Mary. Small chance of preserving Lehman, coupled with greater chance of financial turmoil. I thought it was illegal for a brokerage like Lehman to file under anything but Chapter 7, so this fact alone is interesting (they are saying the holding company can file under Chapter 11 - which lets you stay in business and re-organize - because it is technically not a brokerage, it's an owner of brokerages. The saga continues. The animal has been backed into the corner and has nothing to lose. It's hungry, and angry, and tired, and a risk-taker by nature (the firm is run by people who came up through bond trading). It may behave quite irrationally and without concern for many millions of truly innocent bystanders who might be harmed by a general financial meltdown we haven't seen since 1930. Tomorrow will be spectacular. Stop by 745 7th Ave and get a picture. addendum: just got a internal memo saying Lehman fully intends to stay in business and will meet employee benefits obligations and payroll this Friday. Sounds like hardball.. More...

One Year Ago - September 14th, 2008 7:30pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later. [Photo: Reporter outside Lehman HQ]
No News Except for What You Can Read for Yourself if You Are Interested
Originally written Sunday September 14th, 2008, 7:30

Just finished the call, which was infiltrated by third parties. They said literally nothing.

I think neither "side" is blinking.

One side believes that Lehman can fail without disrupting the wider marketplace and the other believes that either it can remain as a going concern long enough to pull off a miracle or that the Fed will blink in some way that doesn't look like a bailout. In the meantime watch proxies for both sides either say everything will be fine or the sky is falling. Bill Gross, one of the nation's richest men but someone with a lot to lose if Lehman fails, is screaming at anyone who will listen that tomorrow "we are facing a financial tsunami." Others are more sanguine. Tomorrow will be historic. Lehman must file bankruptcy by 11:59pm tonight (I think Central time because a lot of the contracts they need to cover are traded in Chicago) but tonight anyway. The end will probably come quickly. Everybody has an interest in an orderly liquidation of Lehman except for those who have nothing more to lose and the vast majority of those people are good enough to play along, I think. More...

One Year Ago - September 14th, 2008 5:12pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I have been publishing those observations here one year later.

Firm-wide Conference Call at 5:30pm
Originally posted Sunday September 14th, 2008, 5:12pm More...

On Year Ago - September 14, 2008 5pm

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days. [Photo: Lehman emergency evacuation kit]

Lehman News - Bank of America Withdraws From Negotiations
Originally written Sunday September 14th, 2008, 5pm

I'll probably be sending out a lot of these updates so you can wait til the end if you'd like and just delete the rest. Writing out what I think this means as it develops is helping keep me sane for the moment. I'm actually fairly excited and not so worried - at least yet. I just came from the office there are some people gathering their personal stuff in case there's, like, a lockout tomorrow. Plus I was curious to see if there were good photos to be taken (there weren't) So what does this latest development mean? B of A is reputedly in negotiations to acquire Merrill Lynch, which would be the next bank to fail if Lehman fails. This puts added pressure on the Fed, I think, to intervene or for a cabinet level decision to be made tonight to let Lehman enter Chapter 7 bankruptcy in the morning, watch what happens, and go from there. The worst case scenario is that the Dow falls so much that trading is halted and the Fed then intervenes. On the other hand, Chapter 7 bankruptcy just might happen smoothly - who knows? From the Fed's perspective that might be a very good outcome. In the meantime now everyone on the Street is NOW focussed on the Lehman-is-finished-how-do-we-limit-the-damage scenario, which I honestly think very few people put good odds on until this afternoon. In that event Merrill would be looking for a buyer desperately and B of A would have an inside track, which should keep Merrill from being subject to speculative attacks the way Lehman was. In fact, B of A could combine a few parts Lehman with a few parts Merrill together and build something new very cheaply. Or hire 50% of Lehman's now-unemployed junior people in successful areas like Equities. Smart strategic move by them. Outcome for me is probably that my contract gets paid, but it may be months in coming, which would be fine. I'd rather be working while looking for another job but you deal with the hand you are given and I can always demand a more generous allowance from Drew, right? :) I have heard NOTHING from Lehman management since this morning's "we know nothing." I think they are waiting to see if there's any White Knight from any direction before declaring Chapter 7. The European regulators might still panic and guarantee a Barclay's bid or something like that. Might. More...

One Year Ago - September 14th, 2008

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days. [Photo: Employees retrieve personal items just ahead of the Lehman Bankruptcy]
Barclays Just Withdrew From Lehman Bidding Citing Need for Fed Involvement
Originally written Sunday September 14th, 2008, 2:48pm [Ed. note: this note only consisted of the subject line] More...

Sunday, September 13, 2009

One Year Ago - September 14th, 2008

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days. [Photo: Reporters besiege a Lehman employee]
My Assessment of the Lehman Situation
Originally written Sunday September 14th, 2008, 2:45pm

Dear Friends and Family:

From what I can tell, there may be a stalemate developing in the Lehman situation. There are four groups of stakeholders who have very different interests and whose perceptions of one another's interests may very very different from the reality. It's like a poker game

1) The Fed desperately wants to avoid being seen as bailing out yet another bank. Lehman's outright collapse might not have such devastating consequences but the risk that it would create a market meltdown are enough that the other stakeholders simply don't believe that the Fed would risk it. The perception that the Fed would intercede at the last hour is made more credible by the fact that the markets overseas open hours before we do in New York. So the White House will be getting a lot of phone calls from the Europeans this evening if a deal is not announced

2) The potential buyers (like Bank of America and Barclay's) want the lowest price possible and perceive that Lehman is in no position to dictate terms, but they only want the good bits. They'd take on part of the bad bits, but not all of it. Why not? Because the bad bits are the bits that would cause the market meltdown and so they are arguing that the cost of dealing with the bad bits must be shared across the whole financial system in some way. That way would normally be a Fed guarantee of some sort. The Fed wants the rest of Wall St. to figure out how to do that without any help from the Fed, which has been done before but is not easy on short notice for a liability now estimated to be $85Billion

3) Other wall street players like Goldman Sachs and Merrill Lynch have little to gain from any Lehman deal but a lot to lose if Lehman collapses; they also are short of capital themselves so they all will want to wait as long as possible before committing anything to some sort of collective bailout (and even if they did so, they'd be helping their competitors more than they be risking, perhaps, their own positions if Lehman fails outright. Goldman Sachs is much stronger that Merrill Lynch.)

4) Lehman. The fact that the Fed won't make a guarantee (yet), ironically puts some power right back in the hands of Lehman. Lehman's employees own 30% of the firm and have lost everything already. The top guys are so rich maybe they can afford to watch the bank fail if they choose. If the market wants a systemic bank run, it'll have been the Fed's fault for rolling the dice and losing.

I think this is the elephant in the room right now.

One Year Ago - September 14th, 2008

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days. [Photo: Newstruck in fron of Lehman HQ]
More Lehman
Originally written Sunday September 14th, 2008, 2am (Saturday night)

This is going to be extremely interesting as every player is at this point waiting for someone to blink and the Wall Streeters, I'm guessing, are thinking the one most likely to blink will be the Feds. Btw, the brother of the Treasury Secretary Hank Paulson is a senior Lehman employee so there are all kinds of angles to be richly explored.I'm pleased to see the Equities Division, where I work, referred to yet again as one of Lehman's good businesses worth keeping intact. No Deal Reached Yet to Decide Lehman's FateFrom the Wall Street Journal on the web. By CARRICK MOLLENKAMP, DEBORAH SOLOMON, AARON LUCCHETTI, SERENA NG and SUSANNE CRAIGSeptember 14, 2008 1:27 a.m. The outlines of plans to determine the fate of Lehman Brothers Holdings Inc. emerged today even as it became increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute. A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street. Executives from top banks in the U.S. and Europe huddled with federal regulators in an attempt to come up with plans to either buy pieces of Lehman or prepare for an orderly winding down of the firm in a manner that would minimize the collateral damage for the ailing global financial system. After 6 p.m., the formal meeting ended for the day with no resolution, though some participants stayed behind to continue talking. "Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow," said a spokeswoman for the Federal Reserve. At about 8 p.m., New York Fed President Timothy Geithner was still at the bank's headquarters. Officials from the New York Fed and various banks were expected to continue working through the night. Under one plan, either Barclays PLC or Bank of America Corp. would buy Lehman's "good assets", such as its equities business, people familiar with the matter say. Lehman's more toxic, real-estate assets would be ring-fenced into a "bad" bank that would contain about $85 billion in souring assets. Other Wall Street firms would try to inject some capital into the bad bank to keep it afloat for a period of time so that a flood of bad assets don't deluge the market, damaging the value of similar assets held by other banks and insurers. The banks are also looking for the government to somehow financially backstop the bad bank.The problem, though, is getting enough banks to back that plan. While teams of bankers are working through structures, it's clear that only a handful of banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, banks aren't keen to see a big rival such as Barclays or Bank of America walk away with valuable assets by only paying a pittance. As of Saturday afternoon, Barclays, the U.K.'s third-largest bank in terms of market value, appeared to have more interest in pulling off a deal for Lehman's good assets. At about 3 p.m. on Saturday, Barclays President Robert E. Diamond Jr. was seen entering the New York Fed's employee entrance on Maiden Lane, carrying a briefcase. Bank of America, an obvious buyer, appeared to be cooling toward a deal, people familiar with the matter. Of course, some of this could be the posturing that happens in any auction. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, and so far the government has been reluctant to do so. Both Bank of America and Barclays remain fixated on the disposal of the bad real estate assets, and are less focused on evaluating Lehman's investment bank, said one person involved in the due diligence process. Things were moving so quickly Saturday that there was little time to do extensive employee interviewing that typically happens in company auctions. "It's all triage," said this person.The real fear in the discussions, this person added, was that the fire-sale prices, or "marks" of Lehman's real estate book could set off a cascade of problems for other Wall Street firms. If those marks were made against other banks' portfolios, it could eventually force those firms to raise more capital, too. For firms' considering funding the bad bank, the calculation has thus become the price of that contribution against the price of a widescale markdown. There could be further effects to such an event, with the banks calling in loans from hedge funds and other clients, in turn setting off more forced selling that further depresses asset and securities prices. "Unless something is settled, it's going to be a bloodbath Monday," said this person. In a meeting at the Federal Reserve Bank of New York in lower Manhattan, some participants also were discussing insurer American International Group Inc. and thrift-holding company Washington Mutual Inc. While those two financial firms aren't the focus of the emergency meeting, participants also are weighing the potential implications of their problems. One person leaving the building said at least 100 people were gathered inside trying to settle the fate of Lehman, which has been staggered by its exposure to soured real-estate-related assets. By 5:15 pm, some Wall Street executives started to leave the New York Fed one at a time, getting in their cars inside a garage so they can't have their photos snapped. Outside the Fed's downtown headquarters, a fleet of black towncars waited for bankers who were inside. At one point, the towncars blocked the narrow streets around the building, causing a traffic jam that had to be broken up by the Fed's uniformed guards. Meanwhile, bankers and Fed staffers milled around outside, smoking cigarettes and talking on their cell phones about subjects like counterparty risk. "Everybody is hoping there will be a Wall Street solution to deal with Lehman's toxic assets," said one senior executive at a major bank. "It is a cheaper alternative than having everything unravel." With it unclear whether the gap between the federal government and potential buyers can be bridged, a second group at the New York Fed is focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion. On Saturday afternoon, the credit-trading heads of major investment banks gathered at the meeting to discuss how to deal with their exposures to Lehman in the intertwined credit-default-swap market. The lack of a central clearinghouse in this market means that dealers, hedge funds and others are directly facing each other in insurance-like contracts that are tied to trillions of dollars in debt instruments. Credit derivative traders at some firms were asked to come to work over the weekend to help quantify their exposures to Lehman and compile lists of outstanding contracts they have with the investment bank. One person familiar with the matter said large dealers contemplated showing each other all of their credit default swap trades with Lehman. Disclosing their positions may enable dealers to find ways to offset their positions with each other wherever possible. Later in the day, some traders were told that Lehman -- with the help of Federal Reserve officials -- will try to figure out which of its counterparties have CDS trades that can be offset. Those counterparties would be informed of the offsetting positions, following which they can unwind their respective swaps with Lehman and concurrently enter into new swap contracts with each other. For example, if one dealer has bought a swap from Lehman and Lehman sold a similar swap to another bank, the two banks could agree to face each other directly. Such moves could help prevent individual firms from scrambling to find new counterparties to rehedge their positions with when the markets reopen on Monday, potentially unleashing turmoil across the credit markets. They could also help facilitate an orderly wind-down of Lehman's derivative positions, if that becomes necessary. Still, sorting out the firm's CDS positions promises to be a difficult and time-consuming task, because many of the contracts have different terms and maturity dates. It is not known how much in CDS contracts Lehman has. In a survey last year by Fitch Ratings, Lehman was listed among the 10 largest CDS counterparties by number of trades and the amount of debt to which the contracts were tied.Wall Street traders poured into their offices Saturday for emergency meetings to consider the actions they would take if Lehman is forced into liquidation. They broke into teams to evaluate their positions and exposure to Lehman in everything from energy trades to equity derivatives to credit, One trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but still, "if they go into liquidation," it is going to be a bad situation on Monday. A disorderly unwind of Lehman's derivatives trades is only one worry. Another worry is that if Lehman collapses, its distressed assets -- such as commercial real estate -- could suddenly hit Wall Street for sale, forcing prices even lower and potentially forcing other dealers to mark down once again the value of their own holdings. Lehman has hired law firm Weil, Gotshal & Manges LLP to prepare a potential bankruptcy filing, according to a person familiar with the situation. The New York-based Weil has a leading bankruptcy practice and advised Drexel Burnham Lambert on its 1990 bankruptcy filing. In a Lehman bankruptcy, the firm's brokerage units would have to enter a Chapter 7 liquidation, in which a court-appointed trustee would take over, liquidate the firm's assets and get Lehman customers back their money. In general, securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors. In trying to hold firm to their no-bailout stance even while pressing for a deal, federal officials could try to pit Bank of America and Barclays against each other. But that leverage can work only if both banks stay in the discussions. Bank of America and Barclays know each other very well, having considered a merger several years ago. More recently, Bank of America agreed to pay $21 billion for ABN Amro Holding NV's LaSalle Bank of Chicago in 2007. That deal came at a time when Barclays was trying to buy ABN and fend off a European consortium bid. Bank of America's purchase was seen at the time as helping that Barclays bid, which ultimately failed. At Barclays, a big question will be whether CEO John Varley and his No. 2, Mr. Diamond, both agree on buying all or part of Lehman. Mr. Diamond is eager to expand Barclays's U.S. investment bank operations. But the unit, called Barclays Capital, is also responsible for write-downs the bank has recorded. After 5 p.m., bank executives began leaving the meeting, some getting into cars inside a garage where they couldn't be photographed. Those seen leaving included Merrill Lynch & Co. Chairman and Executive John Thain and Citigroup Inc. CEO Vikram Pandit. Bank of New York Mellon Corp. Chairman and CEO Robert Kelly declined to comment. While some executives had left the Fed meeting, those of other firms, including three carfuls of Barclays executives, remained at the Fed office past 6 p.m.At least 20 New York Fed staffers left from another exit. They refused to say if they were done for the night. More...

One Year Ago - September 14th, 2008

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days. [Photo: Facade of Lehman HQ]
Lehman Latest
Originally written on September 14th, 2008 12am (Saturday night

Friends and family:

Interesting to see that more and more articles are saying the most likely outcome may be an outright Chapter 7 liquidation of the Firm with the Fed guaranteeing any existing transactions will be paid for the proceeds with some sort of bridge financing that would not cost taxpayers a cent.

This would be a "good-ish" outcome because I'm fairly certain my contract would be legally protected in this scenario as long as the firm has enough assets to cover the payroll, which they seem to have in the attached article:
From Reuters:
Lehman employees to be paid more than firm is worth
Fri Sep 12, 2008 3:47pm EDT

NEW YORK (Reuters) - Lehman Brothers Holdings Inc is worth less than half the $6.4 billion the bank has set aside to pay employees so far this year.
Shares of the New York-based investment bank were down 8.8 percent at $3.85 in morning trading in the New York Stock Exchange, valuing the company at $2.7 billion, according to Reuters data.

Lehman shares have slumped more than 75 percent this week and more than 90 percent since a 52-week high reached on November 14, 2007, amid growing concern about the 158-year-old investment bank's survival in the credit crisis.
Lehman had 25,935 employees at the end of August. It has recorded $6.4 billion for compensation and benefits expense in its first three fiscal quarters, which includes severance for employees that have been laid off.
(Reporting by Juan Lagorio; Editing by Brian Moss)

Sunday September 14th, 2008, 12:30am (Saturday night) – “More Lehman”

Doubts on Lehman's ability to reach deal
By Francesco Guerrera, Henny Sender and Peter Thal Larsen
Published: September 13 2008 03:00 Last updated: September 13 2008 03:00

When Bear Stearns was rescued by JPMorgan Chase in March, bankers and regulators believed they had stopped the financial crisis from engulfing the rest of Wall Street. Exactly six months later, however, senior executives at Lehman Brothers are preparing for another frantic weekend of negotiations designed to stave off the investment bank's collapse.

Last night, at least two bidders were examining the possibility of mounting a bid for all or part of Lehman. Bank of America, the US lender, has teamed up with JC Flowers & Co, the financial investor, and China Investment Co, China's sovereign wealth fund, to consider a bid. Barclays, the UK bank, was also interested.
The outcome of the discussions is crucial to Lehman as the bank attempts to restore the confidence of counterparties and creditors and to prevent Moody's and Standard & Poor's, the ratings agencies, from cutting its credit rating. However, it is far from clear on what terms Lehman is able to agree a deal - if at all.
People close to the discussions said Lehman's $33bn portfolio of commercial real estate could prove a stumbling block for any deal. Potential buyers could be deterred by fears of further writedowns on the assets, which in turn would depress the value of Lehman's other businesses.

During the conference call that followed Lehman's third-quarter results this week, its executives said the current writedowns of the assets were accurate.
They said Lehman had "stress-tested" its valuations and concluded that only a major collapse in property prices would force a revision.
The book is marked at about 85 cents on the dollar, while its stakes in real estate investment firms Archstone and SunCal are carried at something less than 75 cents on the dollar.

However, those reassurances were questioned by several analysts, who argued that the properties could suffer further falls as the US real estate markets worsened. Potential buyers harbour similar concerns, according to people close to the discussions.

For Lehman's nearly 26,000 employees, the weekend discussions mark the end of a stunning collapse of confidence in the 158-year- old investment bank.
Throughout its recent history, Lehman bankers have praised the bank's cohesive culture and basked in its reputation as a smart, scrappy underdog that was consistently able to defy the odds by outwitting larger rivals.
In 1998, Lehman fought back after Russia's default and the collapse of Long-Term Capital Management, the hedge fund, left the bank nursing heavy losses.
Following the terrorist attacks on the World Trade Center in September 2001, Lehman was forced to evacuate its offices in downtown Manhattan and relocate to a hotel.

Rivals predicted the bank would soon have to sell out to a larger, better-capitalised rival. But Lehman not only survived but thrived as the boom in the credit markets boosted its core fixed-income business.

In the past year, however, Lehman has stumbled badly. Large investments in US commercial and residential real estate left it exposed when the market turned.
At first, Lehman appeared to have weathered the storm in better shape than some
of its rivals. But heavy writedowns triggered large losses in the second and third quarters. As its share price plunged, efforts to raise fresh capital through negotiations with investors, including Korea Development Bank, proved fruitless.

By early this week, Lehman's share price was falling rapidly, prompting executives to bring forward the publication of the bank's results. On Wednesday, Lehman rushed out a survival plan that would involve hiving off up to $30bn of commercial property in a separately listed vehicle and selling a majority stake in the bank's fund management subsidiary.

The move would have enabled Lehman to avoid the need for further writedowns as the new company would hold the assets to maturity. But the plan was all but killed off by the plunge in Lehman's shares on Thursday, which sparked a frantic search for a buyer.

Analysts believe a purchase of Lehman would propel BofA to a top-tier position in investment banking, which it has long coveted but never achieved.
The lure of such a position could prompt Ken Lewis, BofA's chairman and chief executive, to set aside his doubts about expanding in investment banking.
Barclays could see Lehman as an opportunity to expand its Barclays Capital investment banking arm in the US while adding an equities business and a capability to advise on mergers and acquisitions.

But bankers believe Barclays, which recently raised £4.5bn ($8bn) in fresh capital, is unlikely to take on Lehman in its entirety and would need partners with deep pockets in order to compete with BofA.

This leaves the question of what happens to Lehman if it cannot strike a deal. Although the bank has ample liquidity and access to the Federal Reserve's liquidity facility, failure to find a buyer would lead to a further loss of confidence among employees, creditors and counterparties. "In the event LEH is unable to line up an acceptable strategic solution and is downgraded to the triple-B category, there would likely be severe ramifications to the firm," said Brian Zinser, an analyst at Merrill Lynch. "Liquidity would be impacted by less borrowing capacity and collateral postings under counterparty arrangements."
Copyright The Financial Times Limited 2008

Saturday, September 12, 2009

One Year Ago - Hurricane Ike

While the financial world was collapsing, a major hurricane was striking Houston. At the time the juxtaposition of the two seemed a propos. I've got a brother in Houston and once his power went out I updated him via text messages about where the hurricane was making landfall (fortunately to the east of him, putting him in the least dangerous part of the storm). I couldn't sleep anyway for a variety of reasons. More...

World Have Your Say

This blog managed to get me an appearance on BBC's "World Have Your Say" today to discuss the rather black-and-white topis "Banks: Friend or Foe?"

There's a part I and II or their website also. More...

Friday, September 11, 2009

One Year Ago - September 11th 2008

This time last year I was an equity analyst at Lehman Brothers. As the firm collapsed, I sent a series of notes to my friends and family with my take on the situation. To coincide with the anniversary, I am publishing them here over the next few days.
7 years ago today
Originally written on Thursday September 11th, 2008 at 7am

So today I'm about to walk into my office in Times Square at Lehman Brothers, where I'll soon be surrounded by people who were at work in the World Trade Center's North Tower and across the Street at the World Financial Center where Lehman had its world headquarters and had just opened its new trading facility less than 24 hours before the September 11th attacks. Although Lehman's headquarters, trading floors, offices - everything but the Firm itself - was destroyed that day and "only" three people at the Firm lost their lives, the event will have a terrible tangibility for perhaps 50% of the people I work right next to and there are a series of commemorative events throughout the day starting at 8:46.

There are camera crews and satellite trucks all around the Times Square HQ building. Today, on September 11th, 2008, the Firm is literally in a struggle for its own life.

It will be a very strange day indeed.



Thursday, September 10, 2009

Hours of Work Required to Buy the S&P500

From The Big Picture More...

Youtube losing "only" $410MM, not $500MM

Credit Suisse has reiterated their belief that YouTube loses a lot of money even though Google says their analysis is inaccurate. Today Credit Suisse reiterated their claim, albeit admitting YouTube is losing slightly less now. More...

One Year Ago - September 10th, 2008

By this date last year, the Lehman deathwatch had begun. Lehman's New York headquarters was surrounded by TV crews and police barriers.
Inside the building, ominous signs kept gathering even as we tried to keep up the facade of normality. Then stuff like this would appear on our computers screens - basically an order to prevent people from destroying documents.

Wednesday, September 9, 2009

A modest propoal to encourage smoking

For some reason, people think cigarette smokers cost society because they get sick and need medical care. The truth, however, is that on average they are net contributors to society because they die before they run up the big medical bills associated with old age.

Here a tongue-in-cheek suggestion that we stop taxing cigarettes and encourage smoking to reap the benefits. More...

Tuesday, September 8, 2009

Empire State Building September 8, 2009

400th anniversary of Henry Hudson's exploration of New York (orange for the Dutch House of Orange)

Remaking "Wall Street"

Oliver Stone loses it whenever young people tell him "Wall Street" made them seek careers on Wall Street. Which is apparently often. More...

One year later

Meredith Whitney, who's sort of the "it girl" of banking analysts, joins a group of financial muckety-mucks reminiscing about the collapse of Lehman in the current issue of Fortune. Whitney's verdict? "I don't think they should've let Lehman fail. The rules didn't seem uniformly applied. And it's very hard to get individuals comfortable with investing if different rules are being applied to different people."

Friday, September 4, 2009

The weeping glacier of Norway. More...

Wednesday, September 2, 2009

Twitter Deflation

I am apparently not the only one getting over-spammed by hookers on Twitter. More...