Tuesday, June 17, 2008

Lehman's latest...

Here was the latest Lehman spin. It starts with an old Bloomberg lead:

March 20 (Bloomberg) -- David Sherr, a former Lehman Brothers Holdings Inc. executive, is opening a New York-based hedge fund to trade today's most toxic investments: mortgage bonds and asset-backed securities.

Sherr, a 21-year Lehman veteran who most recently ran the firm's securitization group, is starting One William Street Capital Management LP after Peloton Partners LLP and Sailfish Capital Partners LLC collapsed because of losses in the credit markets. With the Standard & Poor's 500 Index down 11.6 percent in 2008, Treasury yields at five-year lows and Wall Street firms cutting more than 15,000 jobs, it's a good time for managers with a clean slate to raise money, according to industry executives...

Sherr, 44, expects to start by June with more than $1 billion, including backing from his former employer, said people with knowledge of his plans, who declined to be identified because fundraising hasn't been completed.


And here:

R3 Capital Partners, header by Rick Rieder of Lehman Brothers, will invest in fixed income securities.

He's Vice Chairman of the Treasury Borrowing Advisory Committee Members.

If we look over at DTC, we see that on May 8, R3 was up and running, with Lehman.

Supposedly the rumour today was that Lehman was offloading assets here. Only problem with the rumour is, the funds aren't big enough, and who would want to burn their reputation on a new fund with Lehman's dreck? It probably got some legs, when Goldman announced that they hadn't reduced any of their Alt-A mortgages in Level 3. If Goldman couldn't unload any; how was Lehman able too? So the above whispers spread. So look for financials, to bounce tomorrow, with Morgan Stanley putting some lipstick on their quarter in the pre-market.

Disregarding rumors, we know that Goldman Sachs announced they pared down their Level 3 assets by over $20 billion. Lehman, which had such "visibility in their "marks" because of all the transactions they did" still is left with almost $40 billion in Level 3 assets. Which begs the question: If you had such visibility on the marks, why didn't the Level 3 assets go down?

Here's what Fuld had to say:

"We had the benefit of much greater price visibility due to the number of assets that were sold especially in the commercial and residential mortgage area that were the result of our deleveraging and the strong trading volumes in the cash, and then certain derivative markets that gave us important additional valuation information."

You start with $40 billion in level 3, and you sell $3 billion, that get's you to $37 billion. You write down the $37 billion by $2 billion, and now you have $35 billion. Now transfer in another $3.5 billion of Level 2 assets, of which you don't like their pricing into Level 3, and you have Lehman's quarter.

I guess visibility is only measured when it's convenient. And Goldman's visibility in the market's direction is apparently a lot better then Lehman's. But don't shine the light on Lehman's balance sheet just yet!

Wait until the next capital raise!

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