Lehman Brothers' bankruptcy - Great Depression trends !?

[kartik]

Lehman Brothers' bankruptcy to change the face of banking

LONDON: In what is being described as the Mother of all Mondays, the fabled Wall Street will never be the same again. Financial commentators are talking about a tectonic shift that will change the face of the world's banking sector as we know it. Markets world wide are reeling from the after effects of the triple shock of Lehman Brothers going into bankruptcy, Merrill Lynch being sold to BofA in a distress sale for $ 50 billion, and AIG asking the Fed for a $ 40 billion bailout. The FTSE dropped 200 points, or around 3% in early trades.

Former US Fed governor Alan Greenspan describes it as a 'once in a century' event, and the 'worst' he's seen in his career. Lehman Brothers, which has survived over 150 years, finally went into Chapter 11 late Sunday night, putting tens of thousands of jobs at risk all over the world. Merrill Lynch, the other Wall Street major, narrowly avoided Lehman's fate by agreeing to be bought by BofA for USD 50 billion – again raising the spectre of an uncertain future for its thousands of global employees. The US government, which bailed out Fannie Mae, Freddie Mac, and Bear Sterns, put its foot down with Lehman, and last minute potential buyers like Barclays walked out late Sunday night.

Said the ET Lehman Brothers' bankruptcy to change the face of banking- International Business-News-The Economic Times

Will this change the dynamics of banking and finance ?

Is this an early sign of economic crises?

What implications will this have on the JOB scenario?

Soo many questions .. such a clutter of confusion.. whats your answer?

[navin_c]

It was one of the most exposed banks to the US sub-prime mortgage market. It did not give out mortgages to ordinary American citizens. Rather, it bought up billions of dollars worth of these loans from US banks, re-packaged them, and sold them on to global investors.


It also invested heavily in property, both commercial and residential. With the US housing market in free-fall these re-packaged loans and its property portfolio have plummeted in value. In June to August last year, the bank said it would write off $700 million (£390 million), from its balance sheet as a result.

In the same three months this year, this figure soared to $7.8 billion (£4.34 billion). The bank tried to sell itself but no one – including the UK's Barclays – was willing to take on these "toxic" assets.



what u have to comment on collapse of such an 150 years old giant......who is next and what would be the effects.........???????

[navin_c]

THESE ARE FEWS FACTS WHICH I HAVE TO SHARE WID U.......IT MAY HELP GAIN CLEARANCE IN THE MATTER
WHAT ET SAYS

Q. Could others follow Lehman Brothers?

A. Yes. Merrill Lynch, one of the most venerable Wall Street firms, has been bought out by the Bank of America to save it going under. AIG, the world's largest insurance company is also running short of funds, it is understood. It is almost certain another major financial institution will collapse.

[navin_c]

Q. But how does this affect ordinary householders?

A. Millions in the UK are hit when stock markets fall – not just investors that directly buy and sell shares. Anyone with a pension will have some of their retirement fund tied up in the stock market.

Added to this, is the £70 billion invested in stocks and shares by savers with Individual Savings Accounts. There are also 1.9 million Child Trust Funds – the Government-backed savings and investment accounts for children – that are invested in the stock market.

All of these investments have fallen over the last year as the credit crisis has taken hold. The fall out from the Lehman crisis means they are likely to continue falling. By the close of play on Monday, the FTSE 100 had fallen by nearly 5 per cent in one day.

[navin_c]

Q. How about my mortgage?

A. The main symptom of the global credit crisis has been the unwillingness of banks to lend money to each other and to consumers.

This has caused, particularly in Britain, the complete drying up of the mortgage market, with 70 per cent fewer home loans sold compared with a year ago, according to the Bank of England. This has made it almost impossible for first-time buyers to get on the housing ladder, and very expensive for people re-mortgaging.

However, rates had been slowly improving in recent weeks, with optimists predicting the worst might be over for the mortgage market. The average interest rate on a two-year fixed-rate mortgage – the most popular deal taken out by home owners – has dropped from a peak of 7.08 per cent at the beginning of July to 6.39 per cent.

That optimism has been snuffed out by the chaos on Wall Street, with most experts predicting that rates are unlikely to fall any lower, as banks around the world once again sit on their hands.

[ROHAN KACHALIA]

Well the next bank to be in line of bankruptcy can be Morgan Stanley as well as Citibank. Both of these banks have huge subprime losses and chances are that even AIG might be in some trouble.

But major concern is How is this mess going to affect the Indian Banking & other sectors?

Well, Lehman has invested $200 million in DLF promoter group company DLF Assets last year and bought 50% stake in Unitech’s Mumbai project for $175 million a few months ago. It had also invested $80 million in Bangalore-based SEZ Gandhi City and was likely to hike its share to $300 million.

Lehman’s other investments include a 40% stake in an IT park project of Peninsula Land in Hyderabad for an initial investment of Rs 50 crore. It had also teamed up with Mumbai-based developer HDIL to bid for the redevelopment of Asia’s largest slum Dharavi.

So, just imagine the amount of impact is going to have on Indian markets and various sectors.

[anandmohandass]

Dear all,

One of my collegue's cousin work with Maryll Lynch. They were of the opinion that the company is an everlasting one.

I hope job losses does not affect many.

Poor market strategy is the prime factor leading to such bankruptcy.

Regards,
Anand

[squareleg]

There r only LESSONS to be learnt. How over aggressive banking leads us to. International ppl wud disagree but the prime function of a Bank is only that of resource mobilisation. Mainly working on the interest rate differentials. That is their core function. Other functions do come in.

These institutions (Lehman n others) r not banks but still they breached the very basic and fundamental lines.

Like buyer of any Asset isnt anyway given a 100% loan in any asset class, there has to be some kind of own contribution and interest.
All that was happening in US was fooling around. They were disbursing 100% loans, (which never happens in India), getting the property mortgaged. Then thru their OWN asset mgmt co. repackage these mortgaged loans into some kind of ASSETS Or say debt instruments or mutual funds. And sell these to countries and people at large.

And again repackaging the LEFT-OVERS of the property into funds. Basically, funding the loan just on another individuals name, who isnt bothered tommorrow if he cant pay back his dues, as the home is already mortgaged, and hasnt paid anything for it. Then again fool investors by designing instrument called Mortgaged Backed Securities and sell them to people. Again thru their own asset mgmt co. All these did work well, but eventually turned into a merry go round, encircled all those associated with it.

Thanks to RBI they still havent allowed these Intl Banks n Institutes to set shop in India.

[hrishikesh_desai]

Hi,

Check out these attachments.

1. Article on Lehman and Merrill,
2. Letter from CEO of Lehman to Buffett, and,
3. Fall of Lehman and its implications

Very good Read....

Regards

[pahuja.chirag]

NEW YORK (AFP) – Lehman Brothers declared itself bankrupt Monday and Wall Street rival Merrill Lynch had to be taken over in a new financial earthquake that sent global markets into a slump.
The US Federal Reserve, European Central Bank and Bank of England injected tens of billions of dollars into money markets after the fall of the banking titans under the weight of the massive financing of bad loans.
Lehman Brothers said it would file for bankruptcy on Monday after a frantic weekend of negotiations failed to arrange a rescue.
In the fallout, Bank of America took over Merrill Lynch in a 50 billion dollar deal, insurance giant AIG was reported to have sought a massive emergency loan to head off its own crisis and a group of banks set up a 70 billion dollars global emergency fund.
"You've probably seen more in one day of financial history than we've seen since the great crash of 1929," Macquarie Private Wealth associate director Marcus Droga said.
"I'm not suggesting the US market will crash tonight, but in terms of landmark events, it's an historic day," Droga told Dow Jones Newswires.
Despite reassurance from central banks, European and Asian stocks plunged by three to five percent, and the dollar fell.
The Federal Reserve eased conditions for collateral in return for the provision of funds to banks and said it was working "to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution."
The European Central Bank said it injected 30 billion euros (43 billion dollars) into money markets to keep them going after the Lehman collapse.
The Bank of England injected 5.0 billion pounds (6.3 billion euros/9.0 billion dollars) into short-term money markets.
"It seems clear that a category five storm is making landfall in the US financial system and a lot of very messy stuff is hitting the fan," Michael Panzer, author of the book "Financial Armageddon," said on his blog.
The Wall Street Journal warned in an editorial Monday that Americans should brace for "a very rough Monday" and called for more government actions in support of Wall Street.
Lehman said the bankruptcy was authorized by its board of directors and will take place at the US Bankruptcy Court for the Southern District of New York Monday.
The bank said in a statement it was acting "in order to protect its assets and maximize value."
"Customers of Lehman Brothers, including customers of its wholly-owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts," the statement said.
The bank lost an estimated 3.9 billion dollars (2.7 billion euros) in its fiscal third quarter amid fresh writedowns on mortgage assets.
Last-ditch efforts to find a buyer collapsed Sunday. A London source at British bank Barclays said it walked away from negotiations because of concerns it would have to guarantee the 158-year-old US firm's trading commitments.
Bank of America said it was buying Merrill Lynch for 50 billion dollars in a transaction that creates the world's largest financial services company.
The acquisition gives Bank of America the largest brokerage in the world with more than 20,000 advisers and 2.5 trillion dollars in client assets.
Treasury Secretary Henry Paulson, who took part in weekend discussions in New York, said the actions "will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets."
Analysts expected Lehman's bankruptcy to hit a range of companies dealing with the Wall Street giant and could worsen the global credit crunch.
The German finance ministry said links between German banks and Lehman Brothers were "manageable".
Japan's financial watchdog on ordered Lehman Brothers' Japan unit to retain certain assets within Japan, it said in a statement.
The US Securities and Exchange Commission said it was "taking actions" to protect the deposits of Lehman's customers, who are protected by SEC rules and an insurance fund.
In a related action, a consortium of 10 global commercial and investment banks announced plans to provide 70 billion dollars to help offset a credit squeeze.
Bank of America, Barclays , Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, and UBS, said in a joint statement they "initiated a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."
They also said they would work together "to help facilitate an orderly resolution" of the derivatives exposures between Lehman Brothers and its counterparties.
"These actions reflect the extraordinary market environment," the statement said.
Meanwhile, The New York Times reported that AIG was seeking a 40 billion-dollar bridge loan from the Federal Reserve in the face of a possible downgrade from credit ratings agencies that could spell its doom