The word on the street is that Lehman will be bought by September 13th. The rumor mill swirls when a stock crashes like Lehman has. Rumors fill the vacuum left by a lack of certainty about a company’s prospects. And right now people are saying that regulators are telling Lehman Brothers to find a solvent partner to get into bed with. Deadline: This Saturday, September 13th.
When Lehman moved up its earnings call in order to quell the rush for the exits earlier this week, many found it a bit odd. However, companies do strange things when there is panic on Wall Street. What I found odd — or better put, interesting — is that Lehman Brothers was looking to dismember itself. Lehman is planning to hive off its commercial real estate portfolio (junky assets) as well as its investment management division (quality assets). What will be left is what Dick Fuld called “Core Lehman” on the Lehman earnings conference call.
Now, I understand why Fuld would look to get rid of a bunch of junky assets, but why would he get rid of quality assets too? Some suspected that Lehman was just trying to raise capital on the sly. When Fuld was asked about this in the conference call he mentioned some palaver about the quality IMD assets having leverage and freeing up capital. Whatever.
Do you believe that? I don’t. Why would you sell the crown jewels unless you had to?
I think Lehman is prepping the company for sale. Dividing the company neatly into its constituent parts makes it easier to digest by some lucky financial institution that has a better balance sheet than Lehman has. The word on the street is that Goldman Sachs is chomping at the bit in order to get at Lehman. But, Lehman has balked at a sale to Goldman because it will mean massive layoffs a-la Bear Stearns.
Nevertheless, Lehman’s options now are severely Limited. Their reputation is tarnished. And it is said they walked away from a perfectly good offer from the Korean Development Bank, which subsequently ended talks with Lehman. Any way you look at it, Lehman’s options are limited. The last time Lehman got it self into this kind of a situation it had to sell the firm out to a credit card company. This time it may not be so lucky.