By Henny Sender in Hong Kong, Greg Farrell in New York, Peter Thal Larsen and Francesco Guerrera in London and Krishna Guha in Washington September 13 2008
Top Wall Street executives met Treasury Secretary Hank Paulson and New York Fed president Tim Geithner at the New York Fed on Friday evening to discuss the crisis at Lehman Brothers.
John Mack, chief executive of Morgan Stanley, and John Thain, chief executive of Merrill Lynch, were among those present at the meeting, which lasted for two hours.
The Friday meeting comes as Lehman faces a weekend of desperate negotiations as executives battle to arrange a rescue bid for the 158-year-old US bank.
Bank of America is seen as the leading candidate to buy Lehman. It is considering a possible joint takeover bid with JC Flowers , the financial investor, and China Investment Co, the Chinese sovereign wealth fund. UK bank Barclays is also interested.
The gathering will invite comparisons with the meeting called by the New York Fed in 1998 to address the crisis at Long Term Capital, the hedge fund.
However, LTCM faced a liquidity crisis which could be addressed by all the banks present contributing some support. Lehman’s troubles are not obviously ones that would be amenable to a similar collective market solution.
The FT understands that the US authorities did not ask the banks present to chip in to save Lehman as they did in 1998 with LTCM - and focused instead on the implications of its troubles and potential demise for markets and the financial system.
Bankers said earlier that a rescue could be hampered by the US government’s reluctance to provide financial support for a takeover as it did for that of Bear Stearns by JPMorgan Chase in March.
Hank Paulson, Treasury secretary, was adamant that no government money would be involved this time. The US authorities may offer other help, including flexibility on regulatory issues, such as treatment of private equity firms involved in a deal.
Mr Paulson believes that the systemic risks associated with the potential failure of Lehman have been reduced because the market has had time to prepare for its possible demise, and a new Fed funding facility would assist an orderly unwinding of its positions.
Some US officials still see a Lehman failure as a scary prospect and are wary of assuming that risk management exercises have removed all the dangers associated with the demise of a complex financial company operating in dozens of countries.
While other financial companies have been in a position to manage their direct exposures to Lehman, it was probable that no one was fully aware of indirect exposures – through third parties or common positions.
The authorities’ stance increases the likelihood that Lehman will be forced into a sale at a knock-down price. People close to the discussions said Lehman’s risky $33bn portfolio of commercial real estate could prove a stumbling block.
Many bankers believe Lehman must find a solution before the market opens on Monday, or face a further loss of confidence.
The authorities resist the idea of a Monday deadline. Ratings agencies Moody’s and Standard & Poor’s have said they will cut Lehman’s ratings if the bank fails to find a buyer. This would limit its ability to act as a counterparty.
Lehman shares fell 13.5 per cent to $3.65.
Christopher Flowers, a former Goldman Sachs partner who is close to BofA, manages about $3.2bn of CIC’s money in a fund dedicated to taking stakes in financial institutions.
A senior executive at CIC declined to comment. BofA and Lehman declined to comment. Mr Flowers could not be reached.
The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.
"We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."
The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.
"We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply."
When the government can no longer pass the United States' "immense debt" on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.
"Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government," Hennecke said on "Worldwide Exchange".
Investors should avoid exposure to debt and stay away from leveraging on any investment or asset, including property, Hennecke advised, adding that "banks have been too highly leveraged in the past, private households, everybody."
Hennecke's stock allocations are mainly Asian-based, especially in the Chinese market as the country's government has a large amount of cash and the macroeconomics are fundamentally strong.
He also suggested investing in gold, despite the recent fall in price.
2 comments:
Fed meets Wall Street chiefs over Lehman crisis
By Henny Sender in Hong Kong, Greg Farrell in New York, Peter Thal Larsen and Francesco Guerrera in London and Krishna Guha in Washington
September 13 2008
Top Wall Street executives met Treasury Secretary Hank Paulson and New York Fed president Tim Geithner at the New York Fed on Friday evening to discuss the crisis at Lehman Brothers.
John Mack, chief executive of Morgan Stanley, and John Thain, chief executive of Merrill Lynch, were among those present at the meeting, which lasted for two hours.
The Friday meeting comes as Lehman faces a weekend of desperate negotiations as executives battle to arrange a rescue bid for the 158-year-old US bank.
Bank of America is seen as the leading candidate to buy Lehman. It is considering a possible joint takeover bid with JC Flowers , the financial investor, and China Investment Co, the Chinese sovereign wealth fund. UK bank Barclays is also interested.
The gathering will invite comparisons with the meeting called by the New York Fed in 1998 to address the crisis at Long Term Capital, the hedge fund.
However, LTCM faced a liquidity crisis which could be addressed by all the banks present contributing some support. Lehman’s troubles are not obviously ones that would be amenable to a similar collective market solution.
The FT understands that the US authorities did not ask the banks present to chip in to save Lehman as they did in 1998 with LTCM - and focused instead on the implications of its troubles and potential demise for markets and the financial system.
Bankers said earlier that a rescue could be hampered by the US government’s reluctance to provide financial support for a takeover as it did for that of Bear Stearns by JPMorgan Chase in March.
Hank Paulson, Treasury secretary, was adamant that no government money would be involved this time. The US authorities may offer other help, including flexibility on regulatory issues, such as treatment of private equity firms involved in a deal.
Mr Paulson believes that the systemic risks associated with the potential failure of Lehman have been reduced because the market has had time to prepare for its possible demise, and a new Fed funding facility would assist an orderly unwinding of its positions.
Some US officials still see a Lehman failure as a scary prospect and are wary of assuming that risk management exercises have removed all the dangers associated with the demise of a complex financial company operating in dozens of countries.
While other financial companies have been in a position to manage their direct exposures to Lehman, it was probable that no one was fully aware of indirect exposures – through third parties or common positions.
The authorities’ stance increases the likelihood that Lehman will be forced into a sale at a knock-down price. People close to the discussions said Lehman’s risky $33bn portfolio of commercial real estate could prove a stumbling block.
Many bankers believe Lehman must find a solution before the market opens on Monday, or face a further loss of confidence.
The authorities resist the idea of a Monday deadline. Ratings agencies Moody’s and Standard & Poor’s have said they will cut Lehman’s ratings if the bank fails to find a buyer. This would limit its ability to act as a counterparty.
Lehman shares fell 13.5 per cent to $3.65.
Christopher Flowers, a former Goldman Sachs partner who is close to BofA, manages about $3.2bn of CIC’s money in a fund dedicated to taking stakes in financial institutions.
A senior executive at CIC declined to comment. BofA and Lehman declined to comment. Mr Flowers could not be reached.
Bailouts Will Push US into Depression: Manager
By CNBC.com
11 Sep 2008
The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.
"We expect a depression in the United States. We expect a depression, very possibly, also in Europe," Hennecke said on "Worldwide Exchange."
The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.
"We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply."
When the government can no longer pass the United States' "immense debt" on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.
"Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government," Hennecke said on "Worldwide Exchange".
Investors should avoid exposure to debt and stay away from leveraging on any investment or asset, including property, Hennecke advised, adding that "banks have been too highly leveraged in the past, private households, everybody."
Hennecke's stock allocations are mainly Asian-based, especially in the Chinese market as the country's government has a large amount of cash and the macroeconomics are fundamentally strong.
He also suggested investing in gold, despite the recent fall in price.
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