Monday, September 14, 2009

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.

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