Tuesday, June 3, 2008

Lehman to write off billions

And to raise another $4 billion in capital. I wonder if their "sexy" CFO, Erin Callan, is going to give anyone a high five after that?

After sifting through the numbers for nearly an hour, Ms. Callan coolly answered more than 20 analyst questions. Then she strode down to Lehman's bond-trading desk and high-fived trading executive Peter Hornick.

Later that day, bond traders gave her a standing ovation, a Wall Street rite typically reserved for CEOs. Profit had plunged, yet Lehman shares surged 46%.

Their problem is this:

During the second quarter, Lehman was stung by hedges used to offset losses in real estate and other securities, according to people familiar with the matter. The firm bet that indexes tracking markets such as real-estate securities and leveraged loans would fall. If that happened, it would book profits that would make up some of its losses from holding these securities and loans.

However, in an unexpected twist, some of the indexes rose, even as the assets they were supposed to hedge against continued to lose value or stayed relatively flat. Lehman's losses from both write-downs on assets and ineffective hedges will likely top $2 billion, people familiar with the matter said. Lehman will also realize additional losses related to its decision to reduce its work force, according to a person familiar with the matter.


Unexpected twist?

Not here:

As we have huge shorts in stocks, we have even bigger shorts in credit. Knock down an index, and then get your mark, and then take 20% of the "phantom" profit that you can't realize for the year end or the quarter, since your position, and every other hedge fund, cannot be monetized because you have the same playbook and positions bigger than the index that you're getting your phantom mark!

But if this was the case, you'd then have a huge rally starting on the first day of the next quarter as the shorts in stocks and credit try and scramble and cover their positions, where they got paid on, of which they didn't monetize!

It looks like the "wizards" at Lehman couldn't see thru the looking glass! That's because on April Fool's day, they had their "sexy" CFO, complaining to the SEC about the shorts instead of managing their books!

Lehman Brothers on Tuesday said it had sent information to the Securities and Exchange Commission about possible abusive short-selling in its shares in recent days.

Erin Callan, Lehman chief financial officer, said the SEC was examining whether hedge funds acted in concert to drive down the bank’s share price in the days following the near collapse of Bear Stearns. Such behaviour could constitute market manipulation, subject to civil and criminal sanctions.

You had the whole story here two months before it happened:

To refresh, here was Lehman's last quarterly report.

Take a look at how Lehman manipulated the cookie jar for their Level III assets, and then you'll be able to figure out how much they'll need to write off. http://aaronandmoses.blogspot.com/2008/03/run-on-lehman.html

But don't expect Lehman to come clean, all at once. Just expect them to hit you for $4 billion dollars whenever they have to report earnings.

And let Erin have her personal shopper pick out some dark clothes to wear that day!

She'll pick out her own shoes!

The Glass Hammer salutes you, Erin Callan, for climbing to the Wall Street corporate ladder, while wearing fabulous (if uncomfortable) shoes. You’ve made it to the top in style.

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