Archive for September 11th, 2008

The focus shifts from Fannie/Freddit to Lehman

September 11, 2008

I had pointed about Lehman Brothers’ disappointing performance in Q2 2008. The post was titled focus shifts from SocGen/UBS to Lehman. Lehman released its expected Q3 results yesterday and the losses continue to worsen.

In Q3 2008 it expects losses to be about USD 3.9 billion. Moreover, the talks about pumping capital by Korean Development Bank have been stalled. So expect some intensive efforts to raise capital or asset sales.

It has made a plan to sell a majority interest in its investment management divisison and expects to write down mortgages significantly

Lehman Brothers has announced its intent to sell a majority stake (estimated to be approximately 55%) in a subset of its Investment Management Division. The subset of businesses (the “IMD Business”) includes the asset management, private equity and wealth management businesses but excludes its middle market institutional distribution business and the Firm’s minority stakes in external hedge fund managers. The sale of a majority stake in the IMD Business will enhance the Firm’s already strong capital base.

Already Strong Capital Base!!

The maximum losses comes from its Capital Markets division (USD 4.1 billion). Within Capital Markets, fixed income markets led to loss of USD 4.6 billion and equity market to a gain of USD 0.5 billion. I-Banking and Investment divsions led to a gain of USD 0.6 billion respectively. Add expenses to this and we have a loss of USD 3.9 billion.

Another thing to note is within expenses compensation expenses have declined from USD 2.3 billion to USD 1.9 billion. It was maddening to see the compensation rising in previous quarter from USD 1.8 billion to USD 2.3 billion.

Let’s see how Lehman fares from now on. The markets were in a frenzy y’day seeing Lehman results expecting more to follow.

Assorted Links

September 11, 2008

1. WSJ Blog points to some words of advice from William Poole

2. Krugman points to one finger salute

3. TTR has a superb post on Fannie/Freddie crisis. He says:

FT estimates the cost of the rescue at around $200 bn – or nearly 1.5% of GDP. S& P places the cost at 2.5% of GDP. In India, the government has spent a total of $7.5 bn to recapitalise the banking system- or under 2% of GDP. But this was roundly condemned at the time. The same editorial writers (in India) are lauding the US government for its rescue act today- what’s good for the US is evidently not good enough for us Indians.

4. MacroBlog has an excellent post on economics of hurricanes.

5. Chris Blattman on darker side of Google’s development strategy

6. Rodrik points to a superb reading on growth diagnostics

7. Fin Prof on ill-effects of using Bloomberg

8. PSD Blog on Aid vs corruption

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