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Saturday 18 October 2008
Lehman Analysts Still the Best Despite Bust
Lehman Brothers Holdings may have gone bust but their analysts were unbeatable. For a sixth year, the now-bankrupt investment bank was home to Wall Street’s smartest stock market analysts, according to Institutional Investor magazine.
Lehman Brothers Holdings may have gone bust but their analysts were unbeatable. For a sixth year, the now-bankrupt investment bank was home to Wall Street’s smartest stock market analysts, according to Institutional Investor magazine.
Lehman’s fixed-income research outshone all rivals since 2000, the magazine’s annual money-manager survey showed.
While the analysts could not prevent the demise of their own firm, their success helps explain why Barclays Capital was so eager to pick up Lehman’s trading and investment banking unit in the United States.
About 50 per cent of Lehman’s 100 equity analysts ranked among the best on the magazine’s All-America Research Team.
Absent under the new regime is Ravi Mattu, head of Lehman’s research department, who left the firm after the sale to Barclays.
Before his exit, Mr Mattu said Lehman employed 250 fixed-income and 100 equity analysts in the US.
JP Morgan Chase held the No 2 spot in the magazine’s survey with 38 top-rated analysts. Merrill Lynch moved up two spots from last year to third place with 36. Citigroup dropped one spot from last year to fourth. UBS was fifth.
The magazine culled responses from more than 3,000 investors and money managers at 830 institutions that manage about US$12.7 trillion in US equities.
Meanwhile, Lehman, which last month filed the largest bankruptcy in history, is the subject of three federal criminal probes and at least 12 subpoenas, according to a lawyer for the failed bank.
“We are facing three grand jury investigations,” lead Lehman bankruptcy lawyer Harvey Miller said.
The probes, launched by the New York US lawyers in Brooklyn and Manhattan as well as in Newark, New Jersey, were focusing in part on Lehman’s role in the US$330 billion auction-rate securities market and possible crimes associated with its US$6 billion June stock issue.
The New York Post reported Lehman chief executive Richard Fuld was among the 12 subpoenaed.
The failure of Lehman Brothers has exposed new fault lines in the credit default swap market, with the bank's absence putting pressure on its counterparties to buy more credit insurance just as confidence in the market is waning.
"It is a cannibalistic frenzy," says one lawyer representing some of the Lehman counterparties in disputes with the failed investment bank. "The credit default swap market has taken on a life of its own. There are huge exposures out there."
Lehman's mid-September bankruptcy is the largest in the US and recoveries for unsecured creditors might be as low as 11 cents on the dollar.
"Many investors had long and short CDS positions with Lehman which are terminated post Lehman's default," said a recent report from JPMorgan Securities. "This leaves investors suddenly long or short on credit risk. Investors need to reset these positions with other counterparties, sometimes at a loss."
In other words, at the moment, participants can't just extinguish credit derivatives contracts with Lehman, they can only offset them. That, in turn, puts pressure on some participants to buy more credit insurance and the cost of such contracts is rising.
Moreover, many counterparties to Lehman who believe it owes them money have joined the ranks of unsecured creditors. This increases the number of claimants and reduces the money available to bondholders and other creditors.
"The impact of a default far outweighs the economic impact of just the debt and equity a company has issued," said Gregg Berman, co-head of the risk business at RiskMetrics. "When you write derivatives to take exposure and have more people betting, you magnify the impact of a default".
The exact amount of any claim is determined by the difference between the value of the collateral and the cost of replacing the contract. The cost has risen in line with fears about the health of financial institutions and the creditworthiness of counterparties.
Theoretically, claims against Lehman should be offset by claims on Lehman's part. But those who believe Lehman owes them money are pressing their claims, and those who owe money to Lehman "basically say come and get me", the lawyer added. * Nomura continued its rescue of Lehman yesterday after the Japanese bank said it would hire 150 fixed-income staff from the US banks' European operations.
Nomura also said that the conditions to closing the acquisition of Lehman's European and investment banking and equities division had been met and that a significant number of the 2,500 staff employed in that unit had been retained.
2 comments:
Lehman Analysts Still the Best Despite Bust
Bloomberg in New York
18 October 2008
Lehman Brothers Holdings may have gone bust but their analysts were unbeatable. For a sixth year, the now-bankrupt investment bank was home to Wall Street’s smartest stock market analysts, according to Institutional Investor magazine.
Lehman’s fixed-income research outshone all rivals since 2000, the magazine’s annual money-manager survey showed.
While the analysts could not prevent the demise of their own firm, their success helps explain why Barclays Capital was so eager to pick up Lehman’s trading and investment banking unit in the United States.
About 50 per cent of Lehman’s 100 equity analysts ranked among the best on the magazine’s All-America Research Team.
Absent under the new regime is Ravi Mattu, head of Lehman’s research department, who left the firm after the sale to Barclays.
Before his exit, Mr Mattu said Lehman employed 250 fixed-income and 100 equity analysts in the US.
JP Morgan Chase held the No 2 spot in the magazine’s survey with 38 top-rated analysts. Merrill Lynch moved up two spots from last year to third place with 36. Citigroup dropped one spot from last year to fourth. UBS was fifth.
The magazine culled responses from more than 3,000 investors and money managers at 830 institutions that manage about US$12.7 trillion in US equities.
Meanwhile, Lehman, which last month filed the largest bankruptcy in history, is the subject of three federal criminal probes and at least 12 subpoenas, according to a lawyer for the failed bank.
“We are facing three grand jury investigations,” lead Lehman bankruptcy lawyer Harvey Miller said.
The probes, launched by the New York US lawyers in Brooklyn and Manhattan as well as in Newark, New Jersey, were focusing in part on Lehman’s role in the US$330 billion auction-rate securities market and possible crimes associated with its US$6 billion June stock issue.
The New York Post reported Lehman chief executive Richard Fuld was among the 12 subpoenaed.
Lehman exposes faults in credit default swaps
By Henny Sender in New York
October 7 2008
The failure of Lehman Brothers has exposed new fault lines in the credit default swap market, with the bank's absence putting pressure on its counterparties to buy more credit insurance just as confidence in the market is waning.
"It is a cannibalistic frenzy," says one lawyer representing some of the Lehman counterparties in disputes with the failed investment bank. "The credit default swap market has taken on a life of its own. There are huge exposures out there."
Lehman's mid-September bankruptcy is the largest in the US and recoveries for unsecured creditors might be as low as 11 cents on the dollar.
"Many investors had long and short CDS positions with Lehman which are terminated post Lehman's default," said a recent report from JPMorgan Securities. "This leaves investors suddenly long or short on credit risk. Investors need to reset these positions with other counterparties, sometimes at a loss."
In other words, at the moment, participants can't just extinguish credit derivatives contracts with Lehman, they can only offset them. That, in turn, puts pressure on some participants to buy more credit insurance and the cost of such contracts is rising.
Moreover, many counterparties to Lehman who believe it owes them money have joined the ranks of unsecured creditors. This increases the number of claimants and reduces the money available to bondholders and other creditors.
"The impact of a default far outweighs the economic impact of just the debt and equity a company has issued," said Gregg Berman, co-head of the risk business at RiskMetrics. "When you write derivatives to take exposure and have more people betting, you magnify the impact of a default".
The exact amount of any claim is determined by the difference between the value of the collateral and the cost of replacing the contract. The cost has risen in line with fears about the health of financial institutions and the creditworthiness of counterparties.
Theoretically, claims against Lehman should be offset by claims on Lehman's part. But those who believe Lehman owes them money are pressing their claims, and those who owe money to Lehman "basically say come and get me", the lawyer added. * Nomura continued its rescue of Lehman yesterday after the Japanese bank said it would hire 150 fixed-income staff from the US banks' European operations.
Nomura also said that the conditions to closing the acquisition of Lehman's European and investment banking and equities division had been met and that a significant number of the 2,500 staff employed in that unit had been retained.
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