Lehmans

mystic_trev

Hey Gen, I see Barclays have pulled out!

http://news.bbc.co.uk/1/hi/business/7615712.stm

What happens now?

mystic_trev

"It was impossible to find a solution to the problem of Lehman's immediate financial obligations in the time available," said the executive.
These obligations, on outstanding transactions by Lehman, run to billions of dollars and would be difficult to finance at the best of times, But in the light of the credit crunch and the parlous state of financial markets, Barclays feels it would be running a crazy risk if it took these on without any protect right now.

Blacky Monday?

Generali

mystic_trev wrote: »

Hey Gen, I see Barclays have pulled out!

http://news.bbc.co.uk/1/hi/business/7615712.stm

What happens now?

I was chatting to a mate about it this afternoon. Basically, by early-mid morning on Monday they'll need to have their funding in place for Far Eastern markets. They're pretty unlikely to be able to borrow much if anything unsecured so whether they can cross that hurdle depends on the assets they have and the liabilities they have to meet on Monday. Then it'll become a rolling problem. Far East funded? On to Europe. Check. Then the Americas. Then back to the Far East starting with Australia and NZ and so it goes on.

The biggest problem they have is that everyone thinks they're in trouble and even if they're not, it becomes a self fulfilling prophesy. The reason for that is that they will only be able to borrow against security and everyone is going to crank up lending rates against them to reflect the higher risk of doing business with them.

It's inconceivable to me that they'll be allowed to fail given what's happened so far. Presumably a bit of carrot and stick jiggery pokery will be tried to push through a 'merger'. If that fails then it's nationalisation and all of a sudden the US taxpayer has an implicit guarantee extended to the entire US investment banking community.

That's where things could get very messy indeed. In very (probably overly) simplistic terms, the US Government is bailing out the investment banking system to maintain the value of investments that Far Eastern governments and individuals have. They are doing this as it has been these people that have financed the twin defecits (trade and Government) and they have to be persuaded to continue doing so for the time being at least.

The thing is, if they have to borrow on a truly massive scale to do this (eg by having to prop up all US Investment banks) then they have only 2 sources of funding: domestic and foreign.

If they fund it domestically they can only do so by printing money. That causes inflation and destroys the value of the foreigners investments so they won't pump more money in.

If they fund it from abroad they are asking the foreign investors to bail themselves out!

My thought is that the US Government is either going to have to let a bank fail at some point or will rather humiliatingly have to raise a lot of financing in a currency other than US Dollars.

Things are getting rough out there. I wonder what the markets really think of Citibank's balance sheet?

mr.broderick

lostinrates wrote: »

Its alright DD, I think they ran the experiment much earlier this morning, half eight or something. So we are still all here....

Yeah but the strangelets are unstable, mini black holes etc...Like the opening sequence of half life..

Trollfever

I will buy their sub-sub-sub prime UK mortgage book in SPML for 50p cash.

mystic_trev

Generali wrote: »

My thought is that the US Government is either going to have to let a bank fail at some point or will rather humiliatingly have to raise a lot of financing in a currency other than US Dollars.

Peston was saying that basically the FED's had enough and is refusing to pump anymore Tax payers money into failing Banks. If that's the case what's the Nikkei going to drop tonight? 1,000 points? And the FTSE tomorrow 500 ? You're the expert - looks like we're in uncharted territory!

mystic_trev

I wonder how many of Lehmans 4,000 UK staff have large (heavily mortgaged) piles around central London. That'll put a dent in the Housing market!

posh*spice

mystic_trev wrote: »

I wonder how many of Lehmans 4,000 UK staff have large (heavily mortgaged) piles around central London. That'll put a dent in the Housing market!

Double whammey - They've lost soooo much already on their Lehman shares:undecided

Trollfever

mystic_trev wrote: »

I wonder how many of Lehmans 4,000 UK staff have large (heavily mortgaged) piles around central London. That'll put a dent in the Housing market!

They could sell the houses and live in the Ferraris.

sabretoothtigger

Generali wrote: »

They'll either be nationalised or sold out Bear Stearns style unless they can offload their asset management arm pronto which looks unlikely.

No we've gone over this, they wont be nationalised or receive debt support that bears did. This is why barclays walked and they are right to do so

Is soros still an investor, is there any way to tell