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Trench Warfare Over Lehman Brothers: Avoid the Crossfire, says Howard Lindzon

Posted Sep 12, 2008 12:46pm EDT by Aaron Task in Investing, Newsmakers, Banking

The Lehman Brothers saga has picked up where it left off Thursday: The stock is tumbling amid rumors about potential buyout deals, government intervention and bankruptcy.

As of this morning, Bank of America was being widely reported as the most likely suitor for Lehman. But Bank of America would most likely require some government backstop for the deal -- as JPMorgan was granted when it bought Bear Stearns back in March - which is not likely forthcoming, according to comments attributed to Treasury Secretary Hank Paulson.

Assuming that's true and BoA won't do a deal without Fed aid, CEO Richard Fuld may be forced to do the thing he's fought so hard to avoid: sell Lehman for scrap and/or break it into parts - investment banking, asset management, commercial real estate, fixed-income - sold to buyers who will be able to name their price.

But this is an incredibly fluid situation and almost anything could happen at this point:

  • Another buyer could emerge (Barclays PLC has been named as another potential suitor.)
  • Paulson could change his mind. (He does like to get things done over the weekend.)
  • BoA's Ken Lewis might decide it's worth going ahead with a deal (although he's still dealing with the Countrywide acquisition).

As discussed in the accompanying video, the unpredictability of the Lehman situation and volatility of financial stocks in general is a good reason for most investors to "just watch" the proceedings, say Howard Lindzon, partner at private equity firm Knight's Bridge Capital Partners.

Lindzon, who is also an active blogger, has no positions in financials currently, believing the trades are "two crowded" and have become captive to a form of "trench warfare" among the hedge funds.

58 Comments

Sivaganeshan
Sivaganeshan - Friday September 12, 2008 01:15PM EDT

it is a good buy, don't miss the chance

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 12, 2008 01:17PM EDT

Lehman has still good business and has a good future but it is wiser that it will taken over because once the confidence is lost from the Chieh Executive better for him to go and the company will go too....... It is good value if some other Bank took it.......That life.......No..choice baby........

Woodshedder
Woodshedder - Friday September 12, 2008 01:21PM EDT

I'm sure Uncle Howard didn't really say "two [sic] crowded." Jeez Howard. Fly would never let you in with your shirt untucked, and your face unshaven.

- Friday September 12, 2008 01:22PM EDT

Just2clowns here --- talkin' Lehman as if they hadda clue lol...

GoPat
GoPat - Friday September 12, 2008 01:24PM EDT

LEH should ride the STORM!

Demetria W
Demetria W - Friday September 12, 2008 01:28PM EDT

I thought so to. the company has great leadership and Paulson is no idiot.

rockjock1037
rockjock1037 - Friday September 12, 2008 01:33PM EDT

Yeah...and I know exactly what hole this is going to hit every investor AND taxpayer in the end.....

Robert
Robert - Friday September 12, 2008 01:33PM EDT

you're the "best and brightest"?

David N
David N - Friday September 12, 2008 01:35PM EDT

What is the hurry. A good deal takes time

Reedersong
Reedersong - Friday September 12, 2008 01:37PM EDT

Why buy now? It will be cheaper when boards are over the windows.

Reedersong
Reedersong - Friday September 12, 2008 01:45PM EDT

Out of Focus is gone???

Bruce
Bruce - Friday September 12, 2008 01:50PM EDT

Really frustrating!! All it takes is someone to make a mistaken comment, (United Airlines), or make a false comment to cause a kneejerk reaction and hence skim some profit while others suffer!!!

__A_YAHOO_USER__
__A_YAHOO_USER__ - Friday September 12, 2008 01:54PM EDT

Trench Warfare is not an option for the defeated Army......Surrender is better. All the Director must go and The Chief Executive no choice the option is reciever but it would be wiser to serrender it all the management and the company itself sadly it is Lehman Brother.The early the bettel.......Asta La Vista .......Adios Amigo...........No confidence in you all sad Gentlemen.........Mamy are interested and canning your portfolio,....I know for sure Lehman has a good future for someone else........Mate......Check......Mate.......

jeffrey
jeffrey - Friday September 12, 2008 02:05PM EDT

It is a disgrace that the government regulators allowed the short sellers to destroy LEH. It was functioning fine just a few weeks ago, even with the real estate losses. So a few short sellers make billions and now the Government and TaxPayers have to fund a bail out, and thousands of Lehman employees lose their jobs, and another part of the economy tanks. The short sellers have destroyed the entire independent securities/investment banking firm industry. Now we have to rely on the giant money centers banks -- big players in the subprime crises, following the S&L debacle, following the third world loan debacle..what's next, credit card crash???

Yahoo! Finance User
Yahoo! Finance User - Friday September 12, 2008 02:16PM EDT

Financials such as the FED, a private bank not a Federal institution have been given too much leeway and not enough oversight by Congress. In the 1860's the discount for green backs was 25% on the west coast compared to gold or silver. The FED promised to distribute the moneys throughout the nation for 5% plus handling all the checking problems for our massive nation. It seemed like a good idea at the time but it allowed them to gain access to the public's pocket book. The FED has been making a profit since 1913 and shipping the profit to the banks in Europe and this hemisphere since then. Every recession and depression since 1913 has been caused by the FED's mishandling of the money supply. Congress has not been smart enough in financial matters to understand what has been going on. The exception in Congress has been given monies for election campaigns that allowed the recipients to stay in office. We need to put the FED under a microscope. If we demand our Congressmen AND WOMEN to do this, they will comply.

D.Volatility
D.Volatility - Friday September 12, 2008 02:37PM EDT

why didn't they sell the CMBS, RBS, CDO assets in early 2007 when risk spreads were tighter than ever!

r dean
r dean - Friday September 12, 2008 02:40PM EDT

Stock ownership is now on such an unlevel playing field ( Hedge funds back to naked shorting and no uptick) that any stock can be driven into the gound. Leman, WM, and then Citigroup while the SEC says OK.

foster
foster - Friday September 12, 2008 02:47PM EDT

Regulators allowed LEH to fail ,they should be accountable. Allowing the shorts to buy NAKED ,the market is becomig LAS VEGAS. The regulators should be PEMOVED or steo in and put up the money to save LEH . They caused the problem .they should PAY.

JosephR
JosephR - Friday September 12, 2008 02:49PM EDT

Richard S Fuld Jr has been thrown into the water and must sink or swim. Had he been on the Goldman Sachs luxury liner, no doubt Mr Paulson would have thrown him a life line. It sure helps to be a part of the GS fleet. Maybe we should investigate to see what is keeping the GS fleet afloat!

Yahoo! Finance User
Yahoo! Finance User - Friday September 12, 2008 03:19PM EDT

Howard should tuck in his shirt

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