CNBC’s Charlie Gasparino broke news yesterday of the latest capital raising attempt for Lehman brothers: a warrant offering a 25 per cent stake in Lehman and a 70 per cent stake in its investment management business, Neuberger Berman. The twist being that Lehman would have a call option on that 70 per cent NB stake.
That’s certainly some development of the original rumour: a straightforward sale of Neuberger. As analysts at JP Morgan noted yesterday, from Lehman’s point of view, there was little a clear-cut sale had going for it:
We don’t think Neuberger is up for sale… We don’t think the investors and rating agencies would welcome this divestiture, which brings a steady cash flow, diversification and a lower compensation ratio.
Wrote DealBook, selling the unit would be tantamount to “selling a ship’s anchor in the middle of a storm”.
Can Lehman really choose otherwise, though? According to Gasparino, Lehman is unlikely to have the clout to make its warrant plan fly. The bank is simply in no position to demand concessions from potential investors.
To wit, capital comes at a premium, and investors, in the current market, would be wise to squeeze every last bit of premium out of a Lehman bailout that they can.
The thing is, you’d have though they’d have worked that out by now.
For a start, the New York Post is reporting today that LEH was recently close to striking a capital raising deal with a Korean sovereign wealth fund: to inject $5bn into the bank. The deal fell through.
The reasons aren’t stated, but it’s pretty obvious that Lehman was after more than the investor was willing to give:
It’s unclear why the deal fell apart earlier this month, although one source speculated that Lehman was aiming to raise more capital than the Korean investor was willing to shell out at the time.
And then consider that other capital raising plan in the offing: the $40bn sale of CMBS assets on the cards last week. As the FT reported:
The troubled investment bank wants to sell the assets either as a whole or in pieces but added there was a gap between Lehman’s perception of the value of the portfolio and that of buyers.
A gap which is widening very very rapidly. And guess what, the investors aren’t the ones that need a deal. Lehman is again being stubborn, when what it actually needs to do is cut its losses; follow Merrill’s lead. Take a big writedown, but get a load of capital.
Dick Fuld doesn’t seem to get it: confidence in his bank isn’t going to magically return overnight. Something’s gotta give.
Two of Lehman’s capital raising plans have come undone. The third looks likely to. Thrice denied, and after that, presumably the bank’s only hope is that the SEC will more permanently enforce its naked shorting ban. Counting on Cox.