Markets live chat transcript for the chat ending at 14:40 on 10 Sep 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH) Stacy-Marie Ishmael (SMI)
PM:
Ok – welcome to Lehman Live
PM:
This is a special bonus edition of FT Alphaville’s regular daily markets chat – Markets Live.
NH:
we are waiting for the Call to begin
NH:
some Vivaldi playing at the moment
PM:
For new readers, I should explain that neil and I have our regular chat at 11am each day – using instant messaging technology.
PM:
Yes, it’s like your kids use on MSN.
NH:
pre-market has Lehman down 6%
PM:
Feel free to leave comments below.
NH:
they were up 27% pre-results
PM:
This is a first for us – using Market Live tech to follow a results conference call.
NH:
figs look to have come in well short of expectation
PM:
So obviously it’s going to be chaos. But hey ho.
PM:
Let’s start off with a picture.
PM:
We believe that if and when Leh is taken over by the Koreans
PM:
It will be Seoul Brothers – as one reader pointed out this morning.
NH:
Estimated Net Loss of ($3.9) Billion or ($5.92) Per Common Share (Diluted)
PM:
Yep – and here’s corporate logo they’ve been preparing.
NH:
Gross Mark-to-Market Adjustments of ($7.8) Billion; Net Mark-to-Market
NH:
Adjustments of ($5.6) Billion, After Hedging Gains and Debt Valuation Gains. Gross Mark-to-Market Adjustments Include:
−
($5.3) Billion on Residential Mortgage-Related Positions
−
($1.7) Billion on Commercial Real Estate Positions
NH:
Estimated Net Revenues of ($2.9) Billion
o
Third Quarter Run-Rate Revenues of $3.5 Billion
o
Ended Third Quarter with:
-
Total Stockholders’ Equity of $28.4 Billion, Up from $26.3 Billion
-
Net Leverage Ratio of 10.6x, Improved from Second Quarter of 12.1x
-
Gross Leverage Reduced to 21.1x from 24.3x at the End of the Second Quarter
o
Estimated Liquidity Pool of $42 Billion
o
Estimated Tier 1 Ratio of Approximately 11.0%, Up From 10.7%
PM:
We’re getting the disclaimers
NH:
we are all on listen only mode first
NH:
then we get to the questions which should be fun
PM:
Nah — Neil — they wont let us ask questions
PM:
we are on listen only all the way thru
PM:
They might be broke bu t they are not mad
NH:
just looking at the results
NH:
I can’t see how they are going to fund the bad bank
PM:
How long is this gufff??????
NH:
talking about a transfer of equity
NH:
Thanking everyone for joining
PM:
Cearly short… short notice
NH:
significant repositioning of firm - he says
NH:
acomplish de-risking of BS
PM:
Mitigate potential for future right downs
NH:
and mitigate potential for further write downs
NH:
FTSE 100 now down 70 points
NH:
unsettled by the Lehman figs
PM:
The music keeps butting in to Fulds address
NH:
right he explaining why the results are so poor
NH:
blaming legacy assets
PM:
Intense public scrutiny — i’ll say
NH:
these have clouded the worth of the Lehman franchise
NH:
client relationships remain strong
NH:
creditors standing with us
NH:
decisions announced today will create clean, liquid balance sheet
NH:
exit vast majority of com real estate
NH:
reshaped human capital
PM:
Fuld sounds completely beaten
NH:
Fuld has a nervous cough
NH:
the firm has been de-risked and re-sized
NH:
talking about the bad bank
NH:
how are they going to fund it??
NH:
selling assets to Blackrock
NH:
presumably that is Kensington
PM:
Bring res exposure down by half he claims
NH:
the BTL lender Lehman bought a while back
NH:
not a great acquisition
NH:
no idea of the markets on the UK assets, which could have a read across to Bungle Bank
NH:
sorry did not mean Kensington
NH:
they did acquire something in the UK, or had a deal to get UK mortgages
PM:
Taking this all together —- we will have what we believe is a strong and clean balance sheet that will allow us to support our core client businesses
NH:
examining all strategic alternatives
PM:
But looking at strategic alternatives
PM:
This firm has a history — based on adversity — delivering
NH:
market falling - FTSE 100 off 85 points
PM:
We are quoting — obviously
NH:
thanking counterparties for support in this period
PM:
Brilliant selection of comments below
NH:
we are on real estate
NH:
current strategy has not worked
NH:
so in order to get rid of it
NH:
we are going to spin it of
NH:
so everyone can share in the upside
PM:
“Core Lehman” — what like an Apple core
NH:
how will they fund it??
NH:
REI Global is the name for the bad bank
PM:
I just dont understand that point –
NH:
just detailing what is going into bad bank
NH:
all assets transfered at carrying value
NH:
saying going to hold assets to maturity
NH:
20-25% of asset value
NH:
that’s what Lehman will fund it with
NH:
and then there will be some debt financing
PM:
He’s saying this split will be “liquidity neutral”
NH:
$5bn a year from cashflow over next three years
PM:
REI Global — paying a “modest dividend”??!?!?!!?!?
NH:
but there could be increased payments
PM:
Lehmon Brother — very good
NH:
market rally now - FTSE 100 off just 63 points now
NH:
guy waffling about stress tests on the real estate portfolio
NH:
apparently the portfolio has intrinsic value
NH:
he seems to be blaming all of the probs on accounting
PM:
Hit Tat - -second that
PM:
What’s a “reverse mortgage”
PM:
(irritant lurker — i dont think so — i think those talks folded 10 days ago)
PM:
Monkey — that would go straight to You Tube
NH:
he is going on and on
NH:
without even pausing for breath
NH:
how can anyone keep pace?
NH:
looking at some of the wire snaps
NH:
ALT-A mortgages marked down to 39cents
NH:
sub prime mortgage assets 34 cent vs 55 in Q2
NH:
Backed CDOS market down to 29 cents vs 35 cents in Q2
PM:
Investment management division….
NH:
will get significant proceeds from sale of stake
NH:
IMD will remain a platform for firm
NH:
but they are selling a majority stake
NH:
advanced discussions with a number of partners
NH:
expect to announce transaction in due course
NH:
got some reaction from currency team at Merrilll
NH:
Despite the announcement of a massive loss (5.92/share, vs. expectations of
around 3.45), and a near-elimination of their dividend (5c from 68c), the LEH preannouncement
may not clear out risk-negative sentiment from the market. Why?
Lehman did not announce actual sales of their investment management
businesses, or spin-off of commercial and residential mortgage assets, but rather,
announced more plans to do so – the promised “strategic initiatives” still have not
happened, but consist largely of plans of action, which could very well move
forward, but have not yet occurred. Markets had been hoping for action, but the
pre-announcement appears to only make promises
NH:
Quite negative for risk, and also for USD, supporting our short EUR-JPY and short GBP-CHF positions.
NH:
they have not actually announced the sale/disposal of anything
NH:
The Firm is also expected to record losses on principal investments of approximately $760 million.
NH:
he talking alphabet soup stuff now
NH:
loss of $60m on hedge fund managers
NH:
cash equities strong in US but not in europe or asia
NH:
reduced headcount by 1500 positions
PM:
Prime broker division “well ahead of 2007″ — that’s heroic
NH:
expecting more jobs to go
NH:
$971m non personel expenses
NH:
saying Lehman was positive at the underlying level in Q3
NH:
saying clients money covered 190% by liquidty pools
NH:
liquidity pool is $41bn
NH:
10-12 times leverage for new LEH
PM:
(J Berg — Commercial mortgage backed securities are the main prob)
NH:
this is a solid plan and timetable
NH:
marks taken today make further write downs unlikely
PM:
Core & Crap - some brand
NH:
he is checking a few things
NH:
he is asking what the IMD sales means for a large chunk of goodwill on the balance sheet
NH:
this will lift tier 1 capital by $3bn
NH:
won’t comment on tax implications of IMD sale
NH:
asking if $5-7.5bn equity going into REI
PM:
He’s dodging the question
NH:
how do you fund it????
PM:
where the equity coming from for REI
PM:
ah — contribute equity
NH:
going to have to put cash in
PM:
Cap requirements of Core Leh?
PM:
Reply — our cap position is strong
PM:
Asset managemnet sale proceeds
NH:
IMD proceeds will be used to pay for it
PM:
“In combination….allow us to retain our strong cap ratios”
NH:
asking about book value past IMD and REI deals
PM:
Here’s what Hecht was saying ahead of the figs:
PM:
Between Scylla & Charybdis; Discounting the Tough Options for Lehman
From Here, Cutting Numbers & Target & Maintain Neutral
NH:
Hecht did not like the answer to that
PM:
Cutting Numbers Again: We make our 2nd round of EPS estimate cuts for
LEH on spread widening since our early August cuts, the likelihood of even
more significant reductions in risk exposures, an even more challenged sale
& trading & I-banking environment than we foresaw at early August, plus
our belief that LEH’s client facing franchise has come under significant
pressure. We reduce Q3E EPS from loss of $3.45 to a loss of $4.80 and FY
‘08E goes to loss of $9.95 (equal to all of 2007 EPS and 40% of ‘06) &
FY’09E to $2.75. Reduce our target to $10 and maintain our neutral rating.
This entry was posted by Paul Murphy on Wednesday, September 10th, 2008 at 13:00 and is filed under Uncategorised.
