Lehman's woes
I doubt that this firm's difficulties all stem from their commercial lending arm but whoever worked in that area certainly didn't help the parent stay strong. Case in point is Lehman's loan to Antares to buy those aging apartments in Byram. The purchase price worked out to something like $800,000 per unit which any real estate agent, if asked, would have said was crazy. So far as I know, they never asked.
My brother Gideon tells an illustrative story of receiving a late-night phone call from an investment bank client almost 20 years ago. The bank was considering buying a failed condo project in town and wanted Gideon's opinion on what they might sell for in a worst-case scenario. Gideon opined, the bank passed and someone else stepped in and lost their shirt. The bank that thought to ask Gideon (and presumably a few other Realtors) is still in business and doing well. So the lesson is, if you don't know what you're doing, ask someone who does.
1 year ago
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7 comments:
Not on topic - but for some reason the google maps are making your site so slow as to be almost unusable...
Chris - What do you think will happen with Lehman in the long term? Where will their stock be in 12 months?
For LEH, the long term is through the weekend. LEH as a public entity is gone. The only question is how LEH leaves the stage AND whether the tax payers pay for that privledge (a la Bear Stearns? JP Morgan).
The question that is of real interest is who is next?
The market would tell you it might be Merrill Lynch.
First, Bear, now Lehman, can't be good for real estate in NYC metro area.
Retired IB'er
It's Washington Mutual next. Merrill and Wachovia are the next-rumored.
Lehman Brothers is gone. Just a matter of who takes it. But it is done, and it will be done very cheaply, because Fed/Treasury does not want to be seen as helping shareholders (who presumably knew the risks)
Current Equity Analyst
To Current Equity Analyst
No arguments on WAMU. My speculation on ML was as to the next investment bank.
What is truly amazing is the shortening cycle between bailout and the next failure. Didn't even get a week out of Fannie/Freddie bailout before LEH.
Retired IB'er
Retired IB'er (I was former IB'er!)
If I recall, the S&L scandal was the same way. As the saying goes, when the tide goes out, you see who's swimming without a bathing suit. Many S&L's went under when the tide turned.
This is what is happening now. Once the real estate market went bust, anyone who had lending exposure/mortgage exposure was affected, and the more exposure, the more you lost.
Since the real estate market is so vast, it stands to reason that it will affect many firms, to a great degree.
There are $11 trillion of mortgages outstanding in the U.S. It is estimated that - thanks to leverage that hedge funds, REITs, and other real estate investors employ - that there is only about $600 billion supporting it. The lenders to these investors are pulling in, and making margin calls. So securities get dumped, compounding the problem. You are seeing deleveraging from the current 18-1 level.
So, where should leverage be? 10 to 1? So we need $500 billion put into the market to get us to $1.1 trillion? I don't know the answer.
Anyhow, I think there is more to come. I think it is likely that some of the higher-end employees will find a spot. The people I really feel bad about are the back office people supporting a family on $100K/year.
(oh and that was me, Current Equity Analyst, who wrote the above)
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