Lehman Brothers Collapse

[slinkydevil]

House backs $700bn bail-out plan

 

http://news.bbc.co.uk/2/hi/business/7651060.stm

[bluemonday]

Hurrah!

 

God Bless America.

 

Bastion of freedom.

Leader of democracy.

 

 

Principal author of this mess.................

[Sebrof]

So answer it here Albert. How is the UK labour government somehow soley responsible for a worldwide financial crisis that began in the USA?

 

The Labour government is responsible for failing to regulate the banks, and encouraging the housing bubble. It's been clear for five years that it was all going to go horribly wrong, and yet they did nothing.

 

I can forgive them, almost, for not noticing some of the more complicated shenanigans that were going on at the same time, but allowing B&B, NR and HBOS to offer mortgages in excess of 100% was just plain criminal.

 

And why Hornby and Applegarth aren't already sewing mailbags I don't know.

 

S

[manshimajin]

I can forgive them, almost, for not noticing some of the more complicated shenanigans that were going on at the same time, but allowing B&B, NR and HBOS to offer mortgages in excess of 100% was just plain criminal.

 

And why Hornby and Applegarth aren't already sewing mailbags I don't know.

 

S

What about Barclays Bank setting aside $2 billion to pay bonuses to the ex-Lehman staff joining them? They say they have a 'contractual obligation to pay them'. If I was a Barclay's shareholder I would be wanting to know exactly why the ex-Lehman's staff weren't simply told :

 

"Your old company went to the wall. It's a completely new ball-game now. Be pleased to still have a job to come in to. If you don't like the idea of not getting $2 billion worth of bonuses hail and farewell."

 

One wonders what Lehmans staff did this year to warrant a $2 billion bonus pool? One also wonders how competent Barclay's top management are to agree to pay this.

[Gladys]

If they bought the company rather than the business, then they have to honour the company's obligations. It is as simple as that. If, however, it is not an obligation that they acquired with the bits of Lehmans they took on, then I would have serious questions about such a payout, can hardly be performanse-related can it?

[manshimajin]

If they bought the company rather than the business, then they have to honour the company's obligations. It is as simple as that. If, however, it is not an obligation that they acquired with the bits of Lehmans they took on, then I would have serious questions about such a payout, can hardly be performanse-related can it?

Prior to the Barclays' buying bits of Lehmans PWC had already moved in as administrators. I am not sure what requirements exist for a purchaser to honour the staff obigations of a company that has filed for bankruptcy? Would have thought that when they bought it Barclays would have said as part of the deal that old contracts went down with the ship and here are the new ones.

 

I gather Lehmans did not feel any obligation to pay their London staff so why would Barclays feel an obligaion to pay the US staff? I wonder if the cleaners and secretaries get to share in the $2 billion (actually I have now read that it is $2.5 billion) dole out?

 

It is this sort of thing that I suspect the US legislators were so pissed off about - bankers wanting the taxpayers to front up with money whilst they used their own company money to pay bonuses to managers of a failed business.

[Gladys]

Agree entirely, but my very limited understanding of the US Chapter whatever process is that it protects the company from its creditors to allow it the opportunity to trade out of its difficulties or to be bought by a 'white knight'. If the company was bought in its entirety rather the best bits of the business on a break-up basis, then the pre-existing liabilities to staff would go with the company.

 

Barclays would have to defend this payout to their shareholders so I would assume that as Barclays are, apparently, one of the more stable, prudent banks at the moment, they feel able to justify the business case for this move. Without knowing the detail of the deal they did to buy the bits of the Lehmans group they did, it is difficult to second guess their judgement. But, as I said above, it does seem a bizarre situation where the senior management of an outfit that very nearly went to the wall through imprudent, if not reckless, business decisions can be paid bonuses.

[Skeddan]

Without knowing the detail of the deal they did to buy the bits of the Lehmans group they did, it is difficult to second guess their judgement. But, as I said above, it does seem a bizarre situation where the senior management of an outfit that very nearly went to the wall through imprudent, if not reckless, business decisions can be paid bonuses.

I've no idea how these bonuses work, but it also seems a bit kooky to have bonuses which are unrelated to shareholder value. I imagine it was based on profit, so toxic loans wouldn't have come into it. 101 - managing for profit vs. managing for shareholder value. Sounds like people might have been heavily incentivised with the wrong performance measures, so were busy destroying shareholder value to get rich quick. It happens all too often. Maybe a big reason for the banking / economic crisis is as simple as this (?)

[Albert Tatlock]

Without knowing the detail of the deal they did to buy the bits of the Lehmans group they did, it is difficult to second guess their judgement. But, as I said above, it does seem a bizarre situation where the senior management of an outfit that very nearly went to the wall through imprudent, if not reckless, business decisions can be paid bonuses.

I've no idea how these bonuses work, but it also seems a bit kooky to have bonuses which are unrelated to shareholder value. I imagine it was based on profit, so toxic loans wouldn't have come into it.

The toxic loans were perceived as profit earlier, so did come into it.

[Skeddan]

The toxic loans were perceived as profit earlier, so did come into it.

I meant taken into account in objective real world terms - not mythical Enron accounting. I'd imagine that there was lots of eagerness and wishful thinking in seeing things as profit - spray painting turds in gold as described elsewhere. Point is 'why?' - seems like because they'd get big bonuses that way - even if it left shareholders in the shit. That mightn't have happened if their compensation schemes had been aligned to shareholder value.

[manshimajin]

If the company was bought in its entirety rather the best bits of the business on a break-up basis, then the pre-existing liabilities to staff would go with the company.

Glad, Barclays acquired parts of the US operations on a break up basis after Lehmans went into liquidation and Nomura acquired its London business. Like you I am not knowledgeable on Chapter 11 bankruptcy. I would have thought common sense says if a company is bankrupt and you take on parts of it you say to the staff be thankful you've got a job considering what happened to your parent and here are your new contracts - protecting the pensions might be another issue but these should have been protected anyway. Mind you common sense does not seem to apply in the banking sector. These guys no doubt had attorneys drawing up favourable dismissal contracts before they joined Lehmans in the first place! No such thing as the sack for senior management!

 

NEW YORK (MarketWatch) -- Barclays PLC, the U.K. bank that dropped out of negotiations to buy Lehman Brothers Holdings Inc. over the past weekend, will buy the troubled brokerage's stock-trading, underwriting and merger businesses, a source familiar with the matter said late Tuesday.The source said that 8,000 Lehman jobs would be saved as a result of the deal, and Lehman's U.S. employees would be told within an hour of their fate. Lehman has more than 28,000 workers around the world, many of whom have been clearing out their desks since the bank failed to find a buyer.

 

The source said that Barclays won't be buying any of Lehman's troubled assets, including its real-estate and real-estate backed securities, derivatives or over-the-counter positions. Further, Lehman's European business will remain in bankruptcy.

 

The source confirmed that Barclays was interested in buying Lehman before it went into bankruptcy over the weekend, but couldn't come up with a deal that would satisfactorily dispose of its real-estate holdings that had sent the company reeling. Now that the investment bank's in bankruptcy, those assets can be left at the holding company and Barclays is free to pluck what businesses it desires.

Lehmans also did a quick transfer of $8 billion from its European assets just before it declared itself bankrupt:

www.Domain-b.com. In the days leading up to Lehman's collapse, the US business took back all the cash held at its overseas subsidiaries. $8.2 billion held by Lehman's offices overseas was sent through London to its headquarters in the US via electronic transfer. Lehman's European headquarters which is based in London often remitted money from its London HQ to its parent company in New York where the money kept overnight accrued interest and sent back the following morning to London. On Sunday when Lehman filed for bankruptcy, Lehman Europe found that it was down by $8 billion as the money failed to arrive leaving the employees and creditors high and dry.

 

It made the European administrators, PricewaterhouseCoopers to file an 83-page motion in the New York court demanding that $8bn which Lehman Europe sent to the US be returned to London as it required paying 4,500 employee salaries, property bills, creditors and other day-to-day expenses.

 

The toxic loans were perceived as profit earlier, so did come into it.

No wonder John McCain describes Lehmans as the bank with the "casino culture" - hope that Barclays does a root and branch sort out of the 'toxic culture' that seems to have pervaded Lehmans staff and to whom they are paying the bonuses.

[Gladys]

Glad, Barclays acquired parts of the US operations on a break up basis after Lehmans went into liquidation and Nomura acquired its London business. Like you I am not knowledgeable on Chapter 11 bankruptcy. I would have thought common sense says if a company is bankrupt and you take on parts of it you say to the staff be thankful you've got a job considering what happened to your parent and here are your new contracts - protecting the pensions might be another issue but these should have been protected anyway. Mind you common sense does not seem to apply in the banking sector. These guys no doubt had attorneys drawing up favourable dismissal contracts before they joined Lehmans in the first place! No such thing as the sack for senior management!

 

Sorry to bang on about it, but if Barclays acquired the company that employed these people rather than the business within the company, they are stuck with the liability. Almost without exception, big business organises itself into a number of subsidiary companies to shelter risk from other parts of the business, each of which is a separate legal entity. So, even on a break up basis, Barclays may have acquired the employing company which covered the US end of business and Nomura acquired the Lehmans company that conducted the London end of things. But in both cases if they have bought the company they have to take it lock, stock and barrel, including any liabilities to staff.

 

That is the reason company acquisition involves a very long process of pre-acquisition due diligence so that the purchaser identifies the liabilities and the quality of the assets. If you buy the business, however, you can cherry pick. In a situation like this, buying the company is the quickest way to complete the transaction as all that is involved in the actual transaction is a transfer of shares, but it can be risky as liabilities may crawl out of the woodwork after you have completed the transaction because you have not had the time to complete your extensive due diligence. Whereas with buying the business, the pre-acquisition due diligence is shorter as you can specify what you will accept and what you won't but the transaction itself can be quite complex involving novation of agreements, negotiations with suppliers/bankers/lessors etc., consultation and negotiation with staff on a change of employer etc.

 

Putting it simply, if you are selling you would want to sell the company as everything goes with it, but if you are buying you would rather negotiate to buy the underlying business assets and leave unwanted liabilities.

 

I suppose my point is that Barclays may have little choice but to make these payments.

[tameelf]

just received this from my broker. I normally don't pass stock tips on, but I thought this exception would be OK. If you hold any of the following stocks, you may want to review:

 

American Can Co.

Interstate Water Co.

National Gas Co.

Northern Tissue Co.

 

Due to the uncertain market conditions at this present time, we advise you to sit tight on your American Can, hold your Water and let go of your Gas. You may be interested to know that Northern Tissue touched a new bottom today, and millions were wiped clean.

[When Skies Are Grey]

Its going to be another busy and stressful week for the markets....

 

Interest rate decision due this week (cut likely?)

Oil prices falling (that can only be a good thing right?)

European Govts rolling out their 100% depositor protection schemes

 

Interesting times......

 

 

 

 

.......closes lid on underground bunker

[Chinahand]

It's a worrying time - I'm genuinely concerned that we are seeing a round of beggar-my-neighbour actions by national governments which simply exaserbate the situation.

 

The world's entire credit system is genuinely at risk - Iceland has asked its pension schemes to repatriate overseas funds, Ireland, Germany et al by unilaterally acting are creating huge disruption.

 

Company's can no longer smooth out cash flows over time, and the cost of debt to roll over obligations coming due now are punitive - Gordon Brown can't just go on about liquidity - the cost of money is now such that previously profitable businesses are now insolvent - the cost of debt has grown hugely and is now wiping out profits. The reality is much more complicated - what level of liquidity and what cost of money - get that wrong and thousands of businesses will go bust, creating ever more problems as their financial paper becomes worthless.

 

Companies are deleavering like mad - but that comes at a huge economic price due to the multiplier effect of debt.

 

In the 1930s beggar-thy-neighbour trade policies caused something like a 50% drop in trade with massive economic repercussions.

 

What we are seeing now could end in a similar way if governments do not coordinate their actions.

 

The so-called Summit this weekend has been shown to be a farce with Brown, Merkel and Sarcozy saying fine platitudes about concerted action, but then totally ignoring them and unilaterally making policy as they go along.

 

Goodness knows what finance will look like if all of Europe ends up guaranteeing all bank deposits - moral hazard all round. Basically at the moment governments are just going "stop the ride we want to get off" - but how to start the ride up again after its stopped and in what form are vastly important questions - plus of course the damage that will occur as it stops/slows down.

 

With lame duck politicians all over the world it is going to be interesting to see how they can coordinate the response to all this.

 

Lots of unknowns - Yuck.