Fasten your seat belts, folks — tomorrow is going to be a VERY bumpy ride
Lehman Bros: Kaputski (bankruptcy):
WALL STREET was braced last night for one of the biggest bank failures in US history after Barclays walked away from a deal to save investment bank Lehman Brothers from bankruptcy.
Federal Reserve officials and leaders of big financial institutions continued to meet in New York late last night to try to avert a fire sale of Lehman assets today that could have a devastating effect on the share prices of other banks, insurers and securities firms.
Barclays withdrew from the talks after two days of emergency negotiations, saying it could not take over Lehman without the support of the US government and other financial institutions.
“The proposed transaction required a guarantee for the trading obligations of Lehman Brothers which was potentially open-ended. Barclays wasn’t willing to assume such an open-ended obligation,” it said in a statement.
Throughout the weekend negotiators had worked on a plan to divide Lehman into a “good bank” that included the parts of the 158-year-old company that have been performing well, and a “bad bank” containing about $85 billion (€59.5 billion) in so-called toxic mortgage and real estate assets.
Under the plan Barclays or Bank of America, which had also shown interest in taking over Lehman, would buy the assets ring-fenced in the “good bank”.
Other financial institutions would pump capital into the “bad bank” to keep it afloat for a few months and prevent a flood of bad assets into the market, which could depress the value of similar assets held by other banks and insurance companies.
Barclays said it was unable to win guarantees in relation to financial commitments faced by Lehman, and the British bank’s withdrawal from the talks brought closer the prospect of bankruptcy.
In case you’re wondering what the financial reward is for driving Lehman Bros. off a cliff, here you go:
Between 1993 and 2007, Mr. Fuld took home about $466 million in compensation, including base salary, bonuses, long-term incentive plan payouts and the value of stock options he exercised. That’s according to calculations from Equilar, an executive compensation research firm.
The bulk of that amount — about $363 million — was from stock-option gains, Equilar said.
Setting aside the slump that began last summer, Lehman’s shares have had an impressive run in recent years, going from below $10 in late 1998 to more than $80 in early 2007, adjusted for stock splits.
Mr. Fuld doesn’t have a severance agreement that would kick in if he were to lose his job.
Even so, if he were to be terminated “without cause,” Mr. Fuld would walk away with a substantial sum.
According to an analysis by James F. Reda & Associates, a consulting firm, Mr. Fuld would receive about $16.8 million in pension-related benefits and $5.6 million in deferred compensation on the way out.
That doesn’t include the value of Mr. Fuld’s restricted stock units that have vested and the shares of Lehman stock that he holds. Including those, the value of his exit package would come to about $64.8 million, based on Lehman’s share price of about $4.38 on Thursday.
Merrill Lynch: Kaputski (sold):
Bank of America has struck a $44 billion deal to buy Merrill Lynch, according to two people familiar with the negotiations, a merger that will unite the nation’s largest consumer bank with one of its most celebrated investment banking firms.
Both boards have approved the deal and it is now being reviewed by lawyers, the sources said. Bank of America will pay about $29 for each share of Merrill Lynch stock. A formal announcement is expected tomorrow morning.
Bank of America is in a position to buy Merrill Lynch because until now the Charlotte company has been a bit player on Wall Street. Instead it runs the nation’s largest retail bank, a business that remains highly profitable. That now gives it the money to go shopping for an investment bank, continuing a long tradition of opportunistic acquisitions.
Is that like an “opportunistic infection”?
Aw, quit yer bitchin’, ya buncha whiners. John McCain’s economic adviser Donald Luskin says “Quit doling out that bad economy line…” — everything’s just fine and dandy. And who are you gonna believe, the mastermind behind this blog or your lyin’ eyes? Oliver Willis pegged this pendejo back last May. Brad DeLong did too, even earlier.
MONDAY UPDATE: But wait, there’s more…Insurance giant AIG: not quite kaputski, but scrambling for cash:
Insurer American International Group Inc., succumbing to relentless investor pressure that drove its shares down 31% on Friday alone, is pulling together a survival plan that includes selling off some of its most valuable assets, raising more capital and going to the Federal Reserve for help, people familiar with the situation said.
Doesn’t it make you feel all warm and fuzzy inside that the value of your retirement savings is plummeting, while the guys who ran these companies into the ground are going to get multimillion dollar golden parachutes? That’s Republican America.
Now imagine all of this, only with an old man who never wanted to govern but only wanted to be elected president in charge, and a young, ambitious theocrat waiting for him to sneeze. Kind of makes you want to go back to bed, doesn’t it?