Lehman Brothers next to be bailed out?
Posted on September 10th, 2008 by bile Tags: bank, credit-rating services, Fannie Mae, Fitch Ratings, Freddie Mac, Lehman Brothers, Merrill Lynch, Standard & Poor's, U.S. government, United States, Wachovia 1 Comment »Lehman Brothers Holdings Inc. came under mounting pressure Tuesday after hopes faded for an investment deal with a Korean bank, helping to trigger a 45% fall in the firm’s shares.
Lehman’s troubles mark the latest installment in the worst financial-system crunch in decades, coming just two days after the U.S. government announced its plan to take over the two giants of the mortgage business. U.S. stocks fell Tuesday, giving back gains that had greeted the weekend bailout of Fannie Mae and Freddie Mac.
The drop in Lehman shares highlights the continuing nervousness in markets as the company attempts to raise fresh capital to offset sharp declines in the value of its assets. Shares of Lehman, which is heavily exposed to troubled real-estate investments, have been under pressure for months and were down about 80% this year before Tuesday’s drop. Investors have been frustrated as Lehman has taken months to pull together a plan to raise capital to absorb expected losses.
On Tuesday, credit-rating services Standard & Poor’s and Fitch Ratings placed their ratings on Lehman on review for downgrades. S&P cited uncertainty about the firm’s ability to raise capital, “based on the precipitous decline in its share price in previous days.” If downgraded, Lehman may be required to post billions of dollars in collateral to its trading partners on derivative contracts and other agreements.
Oh and don’t forget Merrill Lynch’s and Wachovia’s problems. Fun times. Domestic stocks down, international stocks down, precious metals down… a lot. Wouldn’t mind so much if we also had price deflation for the rest of the commodity markets.
