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Friday, April 19, 2024

More on Lehman

Lehman: Deal Sought Before Monday; BofA Most Likely Suitor (Updated Again)

By Yves Smith, at NakedCapitalism.

Excerpt:  "News reports appear to be converging on the hoped-for end game for Lehman. Whether that will come to pass is another thing entirely.

First, the Washington Post, New York Times, and Wall Street Journal all report that the Fed and Treasury are brokering a deal, but are trying to avoid the use of public funds. Query whether we might have some getting close to the line, as in the buyer(s) make heavier use of existing facilities (remember, with the existing worries about year-end liquidity stresses under discussion, existing programs are likely to be enlarged, but for a Lehman buyer to benefit, the collateral rules might need to be relaxed. Since it take time for any deal to close, a finesse may be seen as politically more palatable than something that in form looks more like a bailout.

Note also that the prominent suitors are banks (although Bloomberg says securities firm Normura is a candidate), and may be able to avail themselves of the Federal Home Loan Bank system). Consider the careful wording from the journal:

Any possible resolution is not expected to involve a government bailout along the lines of the rescues of investment bank Bear Stearns Cos. and mortgage giants Fannie Mae and Freddie Mac.

So the powers that be see obvious, specific-to-Lehman measures as politically charged, but that may not rule out other forms of assistance. And the New York Times said,

Among the potential suitors are Barclays of Britain and the Bank of America, these people said, as well as several private equity firms. In each case, the suitors are seeking help and assurances from the Federal Reserve to help make an acquisition palatable.

Barclays and Bank of America are seeking assurances that the Fed would guarantee a part of Lehman’s troubled assets, these people said, similar to the way it backstopped Bear Stearns’s portfolio during the sale to JPMorgan Chase.

So we may have a bit of brinksmanship going. It appeared during the Bear Stearns negotiations that Jamie Dimon played his position as the only game in town to considerable advantage. The Fed and Treasury would be advised not to make themselves again to be hostage to one bidder, but that may be unavoidable."…

Full article here. 

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