From The Times

December 13, 2008

Fallout from Lehman Brothers

collapse still spreading
Christine Seib in New York

When Dick Fuld left Lehman Brothers' headquarters at 745 Seventh Avenue for the
last time on September 15, the broker-dealer he ran may have been defunct, but
there were three like it still left. Three months after Lehman went bust, they are all
gone and the reverberations of Lehman's collapse are still being felt across America.

All that remains of Lehman is bare bones. Two days after the bank declared itself
bankrupt, Barclays bought Lehman's US investment banking business, its
headquarters and two processing centres for $1.7 billion. Just over a week later,
Nomura snapped up the European, Asian and Middle Eastern businesses. Last
week, a management team gained control of the majority share of Lehman's coveted
asset management arm.

The bank's fellow broker-dealers have also changed shape dramatically. On the day
that Lehman went bust, Merrill Lynch announced that it would be bought by Bank of
America in a $50 billion all-stock rescue deal. The so-called Thundering Herd had
fallen into the hands of a conservative North Carolina-based financial behemoth.

The remaining two broker-dealers have become deposit-taking institutions. Fearful of

another Lehman-style implosion, on September 22 the Federal Reserve gave
Goldman Sachs and Morgan Stanley approval to morph into high street banks in the
hope that a base of retail and commercial deposits would provide a much-needed
cash buffer from the global financial storm.

RELATED LINKS

• Those that caused crisis must be allowed to fail

• Lehman Brothers: Countdown to bankruptcy

• Management team to buy Lehman investment arm

Lehman's surprise collapse - the market had expected the US Government to rescue
the stricken bank just as it had organised the sale of Bear Stearns to JPMorgan six
months earlier - set off a chain reaction around the world. The bank's default on $165
billion in unsecured debt hit investors with an estimated $120 billion in losses. The
credit default swap (CDS) market, of which Lehman had been a major player, dried
up. The commercial paper market, where investors had bought Lehman's debt, froze.
Companies began eating up unused portions of credit lines and stashing the money
away in fear that their lenders would pull their funding. As a result, banks quickly ran
out of liquidity.

However, Lehman was not just Wall Street's problem. AIG teetered on the brink of
collapse as investors and counterparties panicked about the insurance giant's own
exposure to the estimated $60 trillion global CDS market. As a result the Federal
Reserve was forced to abandon the moral-hazard high ground and hand over $85
billion in emergency money to AIG.

It took only a day for Lehman to infect mom-and-pop investors. Money market funds
try to ensure that their net asset value (NAV) never slips below $1 so that they
appeal to people wanting stable homes for retirement savings. But on September 16
the Primary Reserve Fund, the oldest money market fund in America, told its
investors that its NAV had dropped to 97cents because of losses on $900 million
worth of Lehman debt. When Primary “broke the buck”, slashing pension pots, the
panic hit its zenith.

Henry Paulson, the Treasury Secretary, needed something to douse the flames in
Wall Street. By September 21 Congress was considering his request for $700 billion
to buy troubled assets from financial institutions. But during the two weeks that it took
to approve the necessary legislation, the markets continued to fall. By October 3,
when the bailout was approved, Mr Paulson said that buying assets would not be
enough - the US Government needed to take equity stakes in banks to strengthen
their balance sheets.

The Treasury Secretary has since used about $335 billion of the bailout fund,
disbursing the cash to at least 52 companies in 25 states, including an agreement
with Citi to inject an extra $20 billion, on top of the $25 billion the bank received in
October.

The flight to quality has sent the income from Treasury bonds to record lows.
Investors have piled more than $100million into money market funds in the past
month, pushing up demand for Treasury bills which this week were trading at a
negative implied yield for the first time since 1940.

Three months after Lehman, the market for some assets remains dead. Figures
compiled by Thompson Financial show that there have been only two issues of high-
risk, high-yield debt since the bank went bust. Mortgage-backed debt has continued
to sell in the past three months, although with far fewer issues per week. The market
for sub-prime and Alt-A mortgage-backed securities, however, is gone. No one is
buying collateralised loan obligations (CLOs) and the CDS market remains in tatters.
Issuance of asset-backed securities is patchy, with at least three weeks since
September 15 in which there were no sales. Yet investment grade debt has
continued to sell at relatively normal levels.
Commercial paper, an important source of short-term funding for many companies,
has picked up in the past six weeks, largely because of a Federal Reserve funding
facility that has bought $300billion worth of the assets over the past seven weeks.
For non-financial companies, the cost of borrowing using commercial paper is at a
ten-year low. US bank lending, including commercial and consumer credit, is at
record highs, indicating that households and companies are not struggling across the
board to get loans. Local governments are issuing municipal bonds at the same level
as before the credit crunch. And real estate lending hit a record high in October.

Octavio Marenzi, the head of Celent, a financial services consultancy, said: “Markets
are very resilient. When people see opportunities, they'll jump in. People are being
more cautious but in aggregate, they'll still participate. People still think more money
is better than less money.

Asian markets in selling frenzy | Commodities ravaged | Bruiser of Wall St looked

after people | Memorabilia worth more than bank | Middleman left holding parcel |
Leader: after Lehman

Fears of a global financial meltdown grew yesterday as the world’s biggest

bankruptcy plunged markets into turmoil.

Investors were left reeling as the abrupt demise of the Lehman Brothers investment
bank sparked the biggest shake-up on Wall Street in decades.

Another of US capitalism’s biggest institutions, Merrill Lynch, is to be swallowed by

Bank of America in a $50 billion takeover to save it from collapse.

Times Archive, 1929: Wall-Street panic

A Niagara of liquidation fell upon the American Stock Exchange today

• Wall Street collapse: effect on business

• New York banker's death

RELATED LINKS
• The worst is not over for the global economy

• It all ends in tears - and a cardboard box

• No bailout of Lehman, the free ride was over

Shares fell as fear spread through the financial system. Central banks unveiled
urgent measures amid concerns that the world economy was entering a dangerous
new phase. The Bank of England injected £5 billion of emergency lending into money
markets.

The 5,000 Lehman staff in Britain were clearing their desks yesterday in the country’s
biggest single loss of jobs since the collapse of Rover in 2005. The majority of the
bank’s 26,000 staff around the world are expected to lose their jobs.

Leading shares on both sides of the Atlantic took a battering. More than £50 billion
was wiped off London’s bluechip shares as the FTSE 100 index tumbled by 212.5
points, or more than 4 per cent. It was the darkest day for the stock market since
January 21, when it fell 5.5 per cent.

Investors were fretting over the financial health of banks that had lent Lehman money
– and the fear that more big institutions would be wiped out. “It’s clear that we are
one step away from a financial meltdown,” Nouriel Roubini, a leading international
economist, said.

London’s losses were stemmed as Bank of America’s rescue bid for Merrill Lynch
helped to limit yesterday morning’s sell-off on Wall Street. When London closed, the
benchmark Dow Jones industrial average was down 300 points, or 2.6 per cent.
Sentiment was also bolstered by steep falls in oil prices, which dropped by more than
$5 a barrel to $96, closing under $100 for the first time in six months and raising
hopes that cheaper fuel would ease economic stresses on Western nations.

However, by close of trading the Dow had fallen by more than 500 points – its
biggest one-day drop since the reopening after the September 11 attacks – as
concerns mounted over the world’s largest insurer. Shares in American International
Group (AIG), which sponsors Manchester United, fell by 45 per cent after it made an
unprecedented approach to the US Federal Reserve for $40 billion in emergency
funding.

Last night the Fed asked Goldman Sachs and J P Morgan Chase, two of Wall
Street’s remaining big banks, to head a $75 billion emergency package to keep AIG
afloat.

As central banks battled to stabilise the system, the Fed eased its rules for
emergency lending further. It announced that it would accept company shares in
return for crisis loans for the first time. In Frankfurt, the European Central Bank
injected €30 billion in emergency funds into eurozone markets.

A group of ten global banks also attempted to foster calm, announcing a $70 billion
pool of funds, with any one of them able to tap a third of that should they hit difficulty.

The collapse of Lehman came after the US Treasury refused to bail out the
embattled 158-year-old bank, a crucial shift after its support in March for a Wall
Street rescue of the failing Bear Stearns.

Lehman was felled by the weight of about $60 billion in toxic bad debts. It went under
holding assets of $639 billion against debts of $613 billion, making it the biggest
corporate bankruptcy since WorldCom collapsed in 2002.

President Bush, seeking to assuage fears yesterday, conceded that “in the short run
adjustments in the financial markets can be painful”. However, he added: “In the long
run, I’m confident that our capital markets are flexible and resilient, and can deal with
these adjustments.”

Henry Paulson, the US Treasury Secretary, insisted last night that the American
banking system remained “safe and sound”. Washington was committed, he said, to
minimising the impact of what he admitted were the “painful” economic shifts of the
present crisis.

From Times Online

September 15, 2008

Lehman Brothers: Countdown to

bankruptcy
Times Online

August 22, 2007: Lehman Brothers announces plans to close its sub-prime
mortgage business, cutting 1,200 jobs.

September 20: Chris O’Meara, chief financial officer at Lehman, steps down to head
global risk management division. Erin Callan, head of the investment banking
practice for hedge funds, succeeds him.

December 13: Reports fourth-quarter profit of $870 million and full-year earnings of
$4.2 billion (£2.35 billion).

January 17, 2008: Lehman says it will stop originating mortgages through wholesale
channels amid continued weakness in the housing and real estate markets.
 RELATED LINKS

• Silver State joins US banking casualties

• Wall Street meltdown: your two-minute catch-up

• Barclays admits walking away from Lehman deal

March 16: US Government and JPMorgan Chase bail out Bear Stearns, a rival US
investment bank. Analysts question whether other investment banks might also
collapse.

March 17: Reports suggest DBS Group, a South-East Asian bank, instructed its
traders to stop working with Lehman, though those instructions were later overturned

April 1: Raises $4 billion in capital.

April 15: Speaking at the investment bank’s annual meeting, Richard Fuld, chairman
and chief executive, tells investors that the worst of the credit crisis is behind Wall
Street but that the environment “will remain challenging.”

May 16: Announces it is cutting 1,400 jobs, or about 5 per cent of its workforce.

June 9: Estimates it lost about $3 billion on the second quarter and is raising $6
billion in fresh capital.

June 12: Removes Ms Callan as chief financial officer and Joseph Gregory as chief
operating officer. Herbert McDade replaces Mr Gregory and Ian Lowitt replaces Ms
Callan.

September 2: Reports indicate state-owned Korea Development Bank (KDB) was

considering buying a 25 per cent stake in Lehman.

September 8-9: Shares of Lehman plunge 52 per cent amid worries the investment
bank was struggling to find new investors and raise capital. Reports say the talks
with KDB have ended.

September 10: Lehman reports third-quarter loss of $3.9 billion and plans moves to
shore up its balance sheet. The announcement, a day after Lehman shares lost 45
per cent, is an attempt to calm market worries. Mr Fuld says the bank will consider all
“strategic alternatives.”

September 11: Lehman shares fall another 42 per cent as investors reject the plan,
forcing Lehman executives to scour Wall Street for a financial lifeline.
 September 12: Wall Street executives and top US financial officials convene at the
New York Fed late on Friday night to discuss how resolve Lehman’s situation before
it shakes investor confidence in the US banking system.

September 13: The group reconvenes at the New York Fed as foreign finance
ministers urge a solution before Asian markets open.

September 13-14: Talks with a Bank of America-led consortium and Barclays to buy
Lehman fail and the bank hires bankruptcy specialists.

September 15: Lehman files for bankruptcy.

Washington - Bank investasi besar Wall Street, Lehman Brothers akhirnya tak
kuat membendung masalah kredit macetnya. Bank berusia 158 tahun itu
akhirnya mengajukan kebangkrutan guna melindungi aset dan memaksimalkan
nilai perusahaan.

Demikian pernyataan dari dewan direktur Lehman Brothers, seperti dikutip AFP,
Senin (15/9/2008). Bank investasi terbesar keempat AS ini akan menyampaikan
formulir kebangkrutan ke United States Bankruptcy Court for the Southern
District of New York pada hari Senin ini.

"Nasabah Lehman Brothers, termasuk nasabah anak perusahaan, Neuberger

Berman Holdings LLC, tetap bisa melanjutkan transaksi dengan menggunakan
account mereka," demikian bunyi pernyataan direksi Lehman Brothers.

Lehman ini mencatat kerugian sekitar US$ 3,9 miliar pada triwulan ketiga 2008
menyusul beberapa hapus buku pada aset mortgage-nya.

Pengumuman kebangkrutan itu muncul setelah tidak adanya pembeli yang pas
sebagai investor baru Lehman Brothers. Keputusan ini sekaligus menjadi akhir

September 16, 2008

No federal bailout of Lehman

Brothers, the free ride was over for
financiers
‘World’s biggest game of poker’ ended at
the weekend for financiers called to gloomy
room
Suzy Jagger

As office workers descended into Wall Street’s Subway station on Friday evening at
the start of what was to be an unusually humid September weekend, 30 of the
world’s most powerful financiers pulled up in chauffeured limousines, like hearses,
around the corner in Liberty Street.

As they crawled through rush-hour traffic in downtown Manhattan, the men who
control the world’s banking system could guess why they had been summoned to the
huge fortress-like headquarters of the New York Federal Reserve Bank. They were
there for the opening hand of what one Fed insider called “the world’s biggest game
of poker”.

The man who had interrupted their weekends, Henry Paulson, the articulate and
unemotional US Treasury Secretary, cut to the chase. “Everybody is exposed,” he
said. It was in all their interests to save Lehman Brothers. If the 158-year-old
investment bank collapsed, they would all be caught up in the havoc that would be
unleashed across the global financial system.

The venue for the meeting, the office of the New York Fed president Tim Geithner,
was suitably gloomy. The room, which has a meeting area attached, resembles a
Victorian prison on the outside and a vault within – dark, damp and cut off from the
outside. Even the windows of adjoining rooms have grilles of wrought iron.

RELATED LINKS

• Memorabilia that’s worth more than the bank

• Bruiser of Wall St looked after his people

• It all ends in tears - and a cardboard box

As some of Wall Street’s biggest egos – including John Thain, the gaunt head of
Merrill Lynch, and Lloyd Blankfein, the astonishingly well-paid chief executive of
Goldman Sachs – settled into their seats, Mr Paulson coldly delivered his second
slice of bad news. There would be no federal bailout of Lehman. The free ride was
over.

Six weeks away from the presidential election, the US taxpayer would not be funding
the rescue of another Wall Street bank. In February, the US Treasury had propped
up Bear Stearns with $29 billion of funds in return for JP Morgan Chase acquiring it
for next to nothing. Not this time. Washington would not be bankrolling any deal. If
there were losses, the banks would have to take them on the chin.

Mr Paulson’s tumultuous term of office will be scrutinised by every economics

student in America for decades. Sitting next to him was Mr Geithner, the man who
may inherit his mantle in an Obama administration. Mr Geithner, who at 47 could
pass for a man in his thirties, speaks very fast, in a low voice, is unexcitable and, it
has been said, so expressionless that he could tell an executive his bank was being
closed tomorrow in the same tone that he might ask a girl on a date.

Mr Geithner laid out two possible scenarios. The first, that the banks agree to support
Lehman while it was dismantled, in an orderly way, over the next few months. The
second was that Lehman pool $85 billion of its dodgiest assets into one fund –
nicknamed “the bad company” – into which the group of 30 would inject $35 billion of
their own money to prop it up.

Purging the Lehman books of their toxic mortgage-backed securities, Mr Geithner

argued, then free the way for another bank such as Bank of America, or Barclays, to
buy the “good company”, such as Lehman’s investment banking business. A few
asked questions. No one showed their hand. By 8pm, the meeting was over, but Mr
Paulson and Mr Geithner worked on into the night.

At the same time, another set of talks had been taking place. Over the course of
Thursday and Friday, both Bank of America and Barclays had spoken to Dick Fuld,
the chief executive of Lehman. Both had expressed an interest in buying part of his
bank. Mr Fuld had realised on Wednesday, as he addressed Wall Street analysts on
a conference call, that his luck had run out and that he must try to find a buyer within
days.

With no firm asset sales to announce, no new capital, the share price had halved in
three days, already down more than 90 per cent on the year. Wall Street, scared of
the bank’s exposure to mortgage-backed debt – it had more than $30 billion of
commercial real estate assets on its books alone – began to call time.

However, both Barclays and Bank of America wanted the same thing – they would
not acquire any of Lehman without federal money.

The group of 30 were summoned again on Saturday to try to bash out a deal. Their
arrival did not bode well. The fleet of black limousines carrying their chino-wearing
executives managed to cause a traffic jam in the narrow streets of the financial
district.

As the meeting kicked off, many of the executives asked why they should bail out a
competitor who had made bad investment decisions. They also questioned why they
were being picked on to fund a bailout when other Wall Street firms such as hedge
funds and pension funds had not been approached. John Mack, chief executive of
Morgan Stanley, grumbled that if they bailed out Lehman this weekend, would it be
Merrill Lynch next: “If we’re going to do this deal, where does it end?”

Things began to fall apart. Mr Paulson dug his heels in over offering federal money,
and by early evening Bank of America had walked away. Ken Lewis, its chief
 executive, was off to launch a separate gamble. Unbeknown to the other bankers, he
called John Thain, his opposite number at Merrill Lynch, to offer $50 billion to take it
over.

His withdrawal from the table left one player to buy Lehman Brothers. Bob Diamond,
the American head of Barclays’ investment arm, wanted to seize the franchise,
believing that he could do so for next to nothing. His interest was frowned on in
London.

Already weakened by Barclays’ exposure to the credit crisis, many in the City – and
some on Barclays’ board – believed Mr Diamond to be too rose-tinted in his view of
the market, and too gung-ho. Known for being cocky, the unfeasibly white-toothed Mr
Diamond has built an admirable investment empire, running his own show within the
bank.

However much his own man, Mr Diamond was not allowed to buy the bank without
going to a Barclays’ shareholder vote, a move that could take weeks. In addition, Mr
Paulson expected Mr Diamond to accept open-ended liabilities for Lehman in return
for the rock-bottom price. By lunchtime on Sunday Barclays, too, had walked away
and by three o’clock, according to one insider, “everyone had gone home”.

But the group of 30 were not the only bankers at work on Sunday. With the collapse
of Lehman now inevitable, traders across New York, the City and Canary Wharf had
been ordered back to their desks to try to calculate their bank’s exposure. In
Lehman’s Manhattan headquarters, by now surrounded by television cameras,
workers collected their belongings and left for the last time.

As Wall Street awaited the final death knell of Lehman, Mr Thain, the cold chief
executive of Merrill Lynch, revealed that he and his board had agreed to the Bank of
America takeover.

The deal was a coup – after Lehman, Wall Street would have turned on Merrill as the
next casualty to fail under the weight of its property-backed assets. Under this deal,
Merrill would be cushioned by Bank of America’s huge deposits.

As Mr Thain counted his blessings – and his potential $9.7 million pay-off – Mr Fuld
announced just before midnight that the game was over and that the bank was bust.

10 Bank Investasi Siapkan US$ 70 Miliar untuk Selamatkan Lehman

Dadan Kuswaraharja - detikFinance
Foto: Reuters

Washington - Upaya penyelamatan bank investasi, Lehman Brothers yang

diambang kebangkrutan terus dilakukan. Sebanyak 10 bank investasi global
membentuk konsorsium yang menyediakan dana hingga US$ 70 miliar untuk
mengantisipasi runtuhnya Lehman Brothers.

Seperti dikutip AFP, Senin (15/9/2008) 10 bank itu adalah Bank of America,
Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan
Chase, Merrill Lynch, Morgan Stanley, dan UBS.

Dalam pernyataan bersamanya, 10 bank itu sepakat untuk membantu

meningkatkan likuiditas, mencegah volatilitas dan tantangan lain yang bisa
mempengaruhi ekuitas dan pasar utang global.

Bank-bank itu sepakat untuk membuat suatu fasilitas utang dengan kolateral
atau collateralized borrowing facility senilai US$ 70 miliar. Masing-masing bank
menyumbang US$ 7 miliar untuk membantu akses kredit.

"Tindakan ini mencerminkan situasi pasar yang di luar kebiasaan," demikian

bunyi pernyataan bersama itu.

Mereka siap bekerja sama dengan Depkeu AS, Bank Sentral AS, Securities and
Exchange Commission (Bapepam AS), dan regulator pasar modal dunia untuk
memastikan terciptanya kecukupan likuiditas dan memberikan jaminan terhadap
sistem pasar modal dan bank.

Ke-10 bank itu juga menyatakan, langkah tersebut akan dikuatkan oleh
keputusan The Fed untuk menerima kumpulan kolateral bagi pinjaman darurat
tersebut, termasuk saham untuk pertama kalinya.

"Langkah The Fed bersamaan dengan komitmen yang signifikan dari sektor
swasta ditujukan untuk memitigasi potensi risiko dan gangguan pasar," kata
Gubernur Bank Sentral AS, Ben Bernanke seperti dikutip dari Reuters.

Lehman sebelumnya diprediksi akan segera mendaftarkan kepailitasn setelah

rencana untuk mendapatkan pembeli gagal. Setelah kisruh Lehman, Bank of
America dikabarkan akan segera mengumumkan rencana pembelian US$ 44
miliar untuk Merrill Lynch