Lehman Brothers: What You Need to Know

Updated from 10:53 a.m. EDT

Early this morning, Lehman Brothers ( LEH) filed for Chapter 11 bankruptcy protection.

Get up to speed on this company in crisis with the following insights from TheStreet.com.

From Lehman Files for Chapter 11 Bankruptcy:

The 158-year-old investment bank filed for Chapter 11 protection at 1:45 a.m. EDT in the Bankruptcy Court for the Southern District of New York, according to The Wall Street Journal. In a statement, Lehman said its board decided to file for Chapter 11 to "protect its assets and maximize value." Lehman said it plans to file certain motions so that it can continue to manage its operations.

Lehman's bankruptcy filing listed debts of $613 billion and named banks from Tokyo, Hong Kong, New York, Singapore, Taipei and elsewhere as unsecured creditors owed hundreds of millions of dollars, the Journal reported.

A group of banks will provide a financial backstop in order to help Lehman liquidate in an orderly fashion, and the Federal Reserve will accept lower-quality assets in return for loans, the The New York Times reported.

The agreement by the banks and Fed to attempt to smooth the impact of a liquidation came out of a series of emergency meetings over the weekend at which government officials and top Wall Street executives tried to work out a rescue plan for Lehman.

It appeared that a plan was coming together under which either Barclays ( BCS) or Bank of America ( BAC)would purchase Lehman's "good assets," while Lehman's "bad assets" would be cordoned off in a "bad" bank, according to an earlier report in the Journal.

But that plan fell apart after it became clear that the government and multiple Wall Street firms would not provide financial support.

Bank of America ended up focusing its attention on another troubled investment bank, Merrill Lynch ( MER), and by early Monday the two companies confirmed a merger agreement.

Read the full version of Lehman Files for Chapter 11 Bankruptcy.

From Lehman Doesn't Pose Systemic Risk:

The Fed's dealer liquidity window, which was Ben Bernanke's creation after Bear Stearns collapsed, has likely kept Lehman on life support for some time, but again, the Fed's decision to let Lehman go belly up indicates that the central bank didn't perceive that there would be too bad of a ripple effect from a Lehman collapse. Otherwise, the Fed would have felt forced to backstop a buyer for Lehman. (While critics decry the use of public funds for any bailout, the Fed has to act if there is "systemic" financial system risk.)

Read the full version of Lehman Doesn't Pose Systemic Risk.

Plus, don't miss Big Banks Plan to Form Loan Pool (Sept. 15: Ten companies will create a $70 billion loan program in the latest step to try to stem the global credit crisis.)

Brokerages Need Banks to Survive (Video, Sept. 15)

Debra Borchardt reports from the New York Stock Exchange that standalone brokerages can't make it without a banking element.

To watch the video, click the player below:

From Cramer: Throw Out the Rulebook:

Having Lehman die is obviously bad for its customers and lenders, but it will be sorted out.

But how can the Fed and Treasury not have been in there telling AIG ( AIG) what to do? How can there not be a plan? How could we let free-market capitalism still run wild? It obviously failed.

How can the Fed not cut rates right now in this deflationary environment to make the deposits of banks worth more?

I put this one on the Federal Reserve. They had every chance to do more, and all they did as fret about Chinese-led inflation. Now the Chinese are so desperate they are doing a stimulus package, and all we have is a Fed that is worried about trying to be sure not that liquidity is available but that its various fancy facilities are in place, facilities that did nothing to help Lehman and did nothing to help Merrill and are doing nothing to help AIG.

Without a rate cut and a Resolution Mortgage Trust, we will simply be facing the imminent demise of Washington Mutual ( WM). We aren't any more ready for that than we were for Lehman.

Read the full version of Cramer: Throw Out the Rulebook. (Related: Cramer: Lazy Leaders Will Cripple Capitalism and Cramer: If Only the Fed Would Slash Rates on TheStreet.com TV)

Plus, don't miss Crescenzi: Where's the Fed? (Sept. 15: There's a chance the central bank is thinking about adding money to the system.).

From Cramer Tackles Lehman, Merrill News (Video, Sept. 15):

Jim Cramer: "What happened at Lehman was very Lehman-specific. Dick Fuld CEO of Lehman Brothers just did a very bad job. What happened with John Thain CEO of Merrill Lynch was that he recognized that no matter how much they sold of their bad mortgage portfolio... he had to sell or else they would take his stock down, and he wanted to do what was right for his shareholders. Ken Lewis CEO of Bank of America is a better manager. Bank of America is a better manager. They knew their customers better. Lehman, Merrill and Bear Sterns were the worst mortgage issuers of this era... you have to go back to the fact that those three had bad underwriting standards, to explain why what's happening right now... This is a business that had been compromised by too much competition. In classic style, it's now consolidating." (Related: Cramer: There's a Reason Banks Rarely Merge on TheStreet.com TV)

To watch the video, click the player below:

From Kass: Under-regulated, Overcompensated:

I have long written that the impact of deleveraging was the equivalent of a broad monetary tightening, and with the Lehman Brothers/American International Group news over the weekend, the extent of the economic damage to the real economy, though still unknown, will be widely felt.

Memo to investment strategists/economists and their economic and corporate profit forecasts: Get real.

Memo to investors/traders: Continue to err on the side of conservatism.

Read the full version of Kass: Under-regulated, Overcompensated

Plus, don't miss Lehman Media Coverage Unforgivably Sloppy (Sept. 15: Forced to work on the weekend, reporters botch several key facts and themes in the coverage of Lehman Brothers' bankruptcy.)

Photo Gallery: Lehman Takes Dubious Place in Street History

Thursday, September 11

From Lehman Plunges Anew on Downgrades:

Lehman Brothers shares were free falling again in early trading Thursday Sept. 11 , as the reeling investment bank failed to impress analysts the day before in shoring up its balance sheet.

Goldman Sachs, Oppenheimer & Co., Banc of America Securities and Citigroup all downgraded Lehman, a day after the firm set plans to sell a majority stake in its asset-management business, spin off its commercial real-estate assets into a new publicly traded company and cut its annual dividend to 5 cents a share from 68 cents.

"Management did not successfully put to rest the issues that had been pressuring the stock," Goldman analyst William Tanona wrote.

Fears that Lehman could suffer the fate of Bear Stearns -- which federal officials forced to sell itself at a cut rate $10 per share to JPMorgan Chase ( JPM) in March -- have been behind the selloff.

Read the full version of Lehman Plunges Anew on Downgrades. (Related: Analysts' Upgrades, Downgrades: Lehman)

From Lehman Seeking a Buyer, as Shares Spiral:

Lehman Brothers CEO Richard Fuld is actively shopping the entire firm after the market's sour response to a capital preservation plan, CNBC reported, citing sources close to the firm.

Read the full version of Lehman Seeking a Buyer, as Shares Spiral.

Plus, don't miss these related Sept. 11 market updates: Market Sinks With Foundering Bank Stocks (10:54 a.m. EDT), Stocks Shake Off Lows, Trade Mixed (12:22 p.m. EDT) and Stocks Shake Off Losses, Turn Higher (2:28 p.m. EDT).

From Kass: Short on Logic:

Despite continued claims in the media that short sellers have a shared responsibility for the fundamental woes (and stock price swoons) at Lehman Brothers... those views remain short on logic...

Rather, it is abundantly clear that deleveraging (of the balance sheets of our financial intermediaries and in the disintermediation surrounding the world's hedge fund community) is a rabid bitch and has contributed to the current bear market in stocks and bull market in risk-aversion.

During today's period of stress and deleveraging, there is "nowhere to run to, baby, no place to hide." Investors/traders face the unenviable (and sometimes non-rigorous) task of gaming hedge fund activity rather than gaming fundamentals.

Read the full version of Kass: Short on Logic. (Related: Cramer: Hedge Funds Are Moving This Irrational Market)

From Cramer: These Financials Can Survive the Carnage (Video, Sept. 11):

Cramer: "One by one as these institutions fail, we're going to get there a bottom , and each time there's going to be tremendous trepidation. But all I can say is, this is the equivalent -- to be biblical about it -- of the Jews... leaving Egypt, and nobody makes it to the promise land except for Aaron. In other words, none of these stocks make it, but when we get there it's the promise land... I want to emphasize to you that the negatives of these companies going under are matched by that fact that sequentially we're taking care of them, so we will get to some place where housing will bottom and the system will be clean. That's what happened in 1991."

To watch the video, click the player below:

Wednesday, September 10

From Lehman Plans Unit Sale After $3.9B Loss:

Lehman Brothers on Wednesday said it plans to sell a majority stake in its investment-management division and take other capital-preserving measures as it expects to report a $3.9 billion third-quarter loss next week.

Lehman also said it plans to spin off its commercial real-estate assets into a new publicly-traded company and cut its annual dividend to 5 cents a share from 68 cents.

Lehman Brothers, set to officially report results Sept. 18, issued the warning after its shares fell 45% Tuesday amid speculation a prospective deal with Korea Development Bank to raise capital hit a snag and concerns mounted the firm would default on its debt.

Lehman's decision to sell an estimated 55% in several of its prized asset management businesses, including its prized Neuberger Berman unit, is likely to be viewed by many investors as a desperate act to shore up its capital position while sacrificing an important source of future revenues.

Read the full version of Lehman Plans Unit Sale After $3.9B Loss.

To listen to the official Webcast of Lehman Brothers' new strategy, click this: Lehman Brothers Announces Preliminary 3Q Results and Strategic Restructuring.

Plus, don't miss these related Sept. 10 market updates: U.S. Stocks Climb on Lehman Plan (10:04 a.m. EDT), Stocks Swing on Financial-Sector Unease (11:48 a.m. EDT), Stocks Build Modest Gains (1:24 p.m. EDT), Stocks Holding to Moderate Gains (2:43 p.m. EDT) and Stocks End Volatile Day With Modest Gains (4:46 p.m. EDT).

From Cramer: Lehman's Not Done Falling (Video, Sept. 10):

Cramer: "I think the short-sellers will try to take it the common stock to 2 dollars , 3... the goal would still be to make it that people don't want to trade with them. That's been the goal of the short-sellers the whole way. I think that this plan allows them Lehman Brothers some breathing room to find a better buyer or to get some capital in... CEO Dick Fuld could've done this plan at 40, 30, 20. So it's really kind of shameful. After the company does this, it will really just be... a small trading firm... maybe like Knight Securities ( NITE) -- maybe not as big as Knight Securities. So this was a case of an opportunity lost."

To watch the video, click the player below:

Plus, don't miss Lehman Deal Light on Details (Sept. 10) on TheStreet.com TV, where Debra Borchardt reports from the floor of the exchange on the lack of details surrounding the deals Lehman announced.

TheStreet.com TV Rewind: Lehman Brothers Breakdown

  • Indecision Killing Lehman (Aug. 21: Cramer says the lack of decision-making is pulling Lehman down the path of Bear Stearns.)
  • Lehman Is a Takeunder (Aug. 19: Cramer questions Lehman CEO Richard Fuld's decision making and the terrible effect on the stock.)
  • I've Written Off Lehman (Jul. 7: Cramer discusses how to play the big capital grab on Wall Street and why Lehman's stock is now dead to him.)
  • Goldman's Right Where Lehman's Wrong (Jun. 17: The investment bank is a mess, plain and simple, says Cramer, and pales in comparison to Goldman Sachs (GS).)
  • To stay up to date on Lehman Brothers and other stocks in crisis, bookmark and vist TheStreet.com's On the Brink section.
    This article was written by a staff member of TheStreet.com.

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