Harry Newton's In Search of The Perfect Investment
Technology Investor. Auction Rate Securities. Auction Rate Preferreds.
8:30 AM EST Tuesday, June 17, 2008: I
want to bore you with Lehman Brothers (LEH) again. The story is so fascinating
and speaks volumes about how Wall Street works.
First, at least two of Lehman Brothers' competitors -- Goldman
Sachs and Deutsche Bank -- have come out in recent days with positive "buys"
on LEH. Why? Why now? The only conclusion I can divine is that they are deathly
afraid of how a collapse (or semi-collapse) of Lehman Brothers might reflect
on their own businesses.
is the ultimate Cockroach Stock. Bad stuff comes regularly. Today
we have two more stories. The most fascinating comes from Rob Kirby's
Financial Sense WrapUp
the Record Straight
week began on Monday, June 9 with Lehman Brothers announcing a worse than
expected 2.8 billion quarterly loss and a simultaneous announcement that they
were going to raise 6 billion in new capital:
Brothers Prices Offerings of $4.0 Billion of Common Stock and $2.0 Billion
of Mandatory Convertible Preferred Stock
6/9/2008 9:19 AM - PR Newswire
YORK, June 9, 2008 /PRNewswire-FirstCall via COMTEX News Network
Brothers Holdings Inc. (NYSE: LEH) announced today it has priced a $4.0
billion public offering of 143 million shares of common stock at $28.00 per
Firm also announced that it priced a $2.0 billion public offering of 2.0 million
shares of 8.75% Non-Cumulative Mandatory Convertible Preferred Stock, Series
Q (the "Preferred Stock").
on Thursday, Lehman Brothers dropped this “material disclosure” bombshell
on the street:
Brothers sack finance, operating chiefs
12, 2008 08:21 AM
YORK - Lehman Brothers Holdings Inc. shook up its management Thursday, removing
two top executives in a concession that attempts to quell Wall Street anger
over recent losses have failed.
nation's fourth-largest investment bank said Chief Financial Officer Erin
Callan and Chief Operating Officer Joseph Gregory have been removed from their
positions, days after the investment bank announced a $3 billion quarterly
on Thursday, incredulously, Lehman announced that they had “closed” their
Bros. says it has raised 6 bln dlrs as losses loom
Friday June 13, 2008, 6:30 am
YORK (AFP) - US investment bank Lehman Brothers said Thursday that it had
successfully closed two special share offerings aimed at raising six billion
dollars to help shore up its troubled finances.
had announced the share offering drives on Monday, when it also told investors
that it would likely post an unprecedented second-quarter loss of 2.8 billion
dollars due to trading losses amid a lingering credit squeeze…
securities law there exists a provision known as right
of rescission which enables would-be purchasers of securities to terminate
or ‘back out’ of a transaction – prior to closing - if they have been materially
misled regarding the circumstances of a given transaction:
of Rescission [read about it here]:
purchasers may rescind fraudulent sales by national banks of their own capital
let’s take a look at what transpired in the world of Lehman stock from the
time they announced their financing last Monday until Thursday when the deal
and gentlemen, the “SACKING of a
CEO and CFO certainly qualifies as an “undisclosed material fact[s].”
Lehman’s stock price had fallen 6.78 per share [23%] on the back of these
new revelations/disclosures and somehow – whoever these new WOULD-BE
investors were – did not seem to care, sought no relief, and implausibly had
no interest in “levering” their position to their advantage on a 4+ billion
common stock transaction.
I asked my guru,
Dan Good Kirby's conclusion made sense? He emailed me:
DOES NOT work this way.
simply DOES NOT HAPPEN in the real
Lehman financing was categorically a “bail out.”
REEKS of being another pre-arranged
/ rigged Federal Reserve hand-out; the practice of crony capitalism – starvation
and restricted credit for the masses and open spigots at the almighty fiat
trough for connected, privileged insiders.
Hard to tell.
One would think the price would be set AFTER the sacking. Normally
there are rights of recision if a material fact is not disclosed or at least
a price reset. Also, it's unlikely that FED involvement wouldn't have been
For the second
Lehman cockroach, I turn to today's Wall Street Journal's Heard on the Street.
Harder to Shake. Balance Sheets Could Swell Again Under Proposal
Financial firms scrambling to shrink their balance sheets may find that for
every step forward, they could soon be taking two back.
That is because
assets that these firms previously sold off to investors, or securitized,
could come back to haunt them in 2010, and in some cases even earlier, under
accounting-rule changes proposed last week. For investors who think that financial
firms just need to get past mortgage-related write-downs for profits to rebound,
this is bad news.
Brothers Holdings Inc., which Monday reported that it shed nearly $150 billion
of assets during its fiscal second quarter, which ended in May. The firm trimmed
its sails in the presence of a $2.8 billion loss for the quarter.
size of the balance sheet is important for embattled firms like Lehman. It
shows investors that a firm is cutting its reliance on borrowed money -- which,
in good times, can amplify returns, but can also speed losses when markets
in 2010, Lehman and other firms may have to reconsider whether some assets
they securitized in recent years should come back onto the books. Although
the assets were sold off, firms often retained interests in the securitization
vehicles, service the mortgages in them and in some cases can be forced to
take back some of the assets.
new rules, the Financial Accounting Standards Board said firms will have to
use new, more qualitative measures to determine if a company actually controls
a vehicle. If adopted, things like retained interests or servicing rights
could force firms to bring some assets back onto their balance sheets.
Lehman has a
lot at stake, especially since it hopes in coming years to achieve a 15% return
on equity. To do that, it needs to boost revenue, which, for a financial firm,
means boosting assets.
But that could
be difficult if old assets are forced back onto the balance sheet. Between
2003 and 2007, Lehman securitized more than $700 billion in assets, according
to its annual filings. About 85% of these, or about $600 billion, were residential
It isn't clear
how much Lehman would need to take back onto its books under the proposed
rule changes. But even the return of just 20% of its securitized assets could
offset the firm's recent balance-sheet reduction.
for Lehman declined to comment.
rightly concerned about the assets on Lehman's books and whether the firm
has sufficiently marked them down. They also may have to worry about assets
they can't yet see.
Remember I wrote
about David Einhorn, the hedge fund manager who shorted Lehman Brothers and
is making a killing. There's a big profile on him in the latest issue of New
York Magazine. Worth reading.
Wall Street is
in the midst of its biggest, ugliest, worst round of layoffs in decades. Many
of its present businesses are broken. Jim Cramer did a piece called Last
One Left, Please Turn Out the Lights. It's also in the latest issue of New
York Magazine. It's not good for Lehman, either. But I'm not going
there, for now. I'm still short LEH.
the Saudis trying to bring down the price of oil? What
should we make of the Saudis call for the heads of state of oil consuming
and producing countries -- meaning all countries -- to meet to discuss oil?
To answer this question, my oil guru, Jim Kingsdale has written a long, detailed,
intelligent piece. His conclusion: Stay away from the oil market for now. Stick
with the shipping and oil services and drilling companies rather than the E
& Ps (exploration and production companies). You must read his important
piece at Energy
2008 Darwin Awards. The Darwin Awards do not
exist. There are no learned judges. And there is no way of checking if any of
this actually happened. Still, the stuff is funny and could have happened,
maybe. Are people really that stupid? Probably yes.
In Detroit - a 41-year-old man got stuck and drowned in two feet of water after
squeezing head first through an 18-inch-wide sewer grate to retrieve his car
A 49-year-old San Francisco stockbroker, who 'totally zoned when he ran,' accidentally,
jogged off a 100-foot high cliff on his daily run.
While at the beach, Daniel Jones, 21, dug an 8 foot hole for protection from
the wind and had been sitting in a beach chair at the bottom! When it collapsed,
burying him beneath 5 feet of sand. People on the beach used their hands and
shovels trying to get him out but could not reach him. It took rescue workers
using heavy equipment almost an hour to free him. Jones was pronounced dead
at a hospital.
Santiago Alvarado, 24, was killed as he fell through the ceiling of a bicycle
shop he was burglarizing. Death was caused when the long flashlight he had placed
in his mouth to keep his hands free rammed into the base of his skull as he
hit the floor.
Sylvester Briddell, Jr., 26, was killed as he won a bet with friends who said
he would not put a revolver loaded with four bullets into his mouth and pull
After stepping around a marked police patrol car parked at the front door,
a man walked into H&J Leather & Firearms intent on robbing the store.
The shop was full of customers and a uniformed officer was standing at the counter.
Upon seeing the officer, the would-be robber announced a hold-up!, and fired
a few wild shots from a target pistol. The officer and a clerk promptly returned
fire, and several customers also drew their guns and fired. The robber was pronounced
dead at the scene by Paramedics. Crime scene investigators located 47 expended
cartridge cases in the shop. The subsequent autopsy revealed 23 gunshot wounds.
Ballistics identified rounds from 7 different weapons. No one else was hurt.
Paul Stiller, 47, and his wife Bonnie were bored just driving around at
2 A.M. so they lit a quarter stick of dynamite to toss out the window to see
what would happen. Apparently they failed to notice the window was closed.
Kerry Bingham had been drinking with several friends when one of them said they
knew a person who had bungee-jumped from a local bridge in the middle of traffic.
The conversation grew more heated and at least 10 men trooped along the walkway
of the bridge at 4:30 AM. Upon arrival at the midpoint of the bridge they discovered
that no one had brought a bungee rope. Bingham, who had continued drinking,
volunteered and pointed out that a coil of lineman's cable, lay near by.
They secured one end around Bingham's leg and then tied the other to the bridge.
His fall lasted 40 feet before the cable tightened and tore his foot off at
the ankle. He miraculously survived his fall into the icy water and was rescued
by two nearby fishermen. Bingham's foot was never located.
And the winner
is: Zookeeper Friedrich Riesfeldt (Paderborn, Germany) fed his constipated
elephant 22 doses of animal laxative and more than a bushel of berries, figs
and prunes before the plugged-up pachyderm finally got relief. Investigators
say ill-fated Friedrich, 46, was attempting to give the ailing elephant an olive
oil enema when the relieved beast unloaded. The sheer force of the elephant's
unexpected defecation knocked Mr. Riesfeldt to the ground where he struck his
head on a rock as the elephant continued to evacuate 200 pounds of dung on top
of him. It seems to be just one of those freak accidents that proves... 'Shit
It is important
to thank these people (if they ever existed) for removing themselves from the
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
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reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
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