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Wednesday, 20 August 2008

More Financial Worries

Lehman shares slide on fears over results

By Ben White in New York

Published: August 19 2008 18:42 | Last updated: August 20 2008 07:14

Shares in Lehman Brothers continued their steep decline on Tuesday, falling more than 13 per cent amid fresh predictions of significant third-quarter writedowns.

The decline also came after reports that the troubled investment bank may sell all or part of its asset management arm, Neuberger Berman, a move it has long resisted.

Lehman shares dropped 13.04 per cent, or $1.96, to close at $13.07 in New York, reducing the market value of the investment bank to around $9.1bn. That is less than the estimated $10bn standalone value of Neuberger, which Lehman bought for $2.6bn in 2003.

Lehman shares are off nearly 80 per cent this year following large writedowns on the bank’s troubled mortgage portfolios. Lehman was among the leading underwriters of mortgage-backed securities and was left with large holdings after the subprime crisis curtailed investor appetite for the fixed-income products.

Tuesday’s share price drop came after analysts at JPMorgan Chase said in a report that Lehman would post another $4bn in credit-related writedowns in its fiscal third quarter, which closes at the end of August.

Lehman has already posted over $8bn in writedowns and has been scrambling to raise capital to shore up its balance sheet. Lehman declined to comment on the JPMorgan report. Lehman has been selling some mortgage assets but still has about $61bn in exposure, JPMorgan said.

Lehman raised $6bn in the spring from a group of mostly US-based institutional investors following an embarrassing $2.8bn second-quarter loss, the first in its 14-year history as a public company.

Lehman had hoped to make a deal with a strategic Asian partner as part of the capital raising but talks failed to progress. Investors in the last capital-raising are sitting on significant losses so it is not likely that Lehman could sell more shares to raise fresh capital.

People close to the matter said Monday that Lehman was involved in exploratory talks with several private equity and strategic bidders for all or part of Neuberger Berman.

However, the JPMorgan analysts said they did not believe the business would be sold because it is a reliable cash generator.

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Wednesday, 30 July 2008

Get Out of PAPER MONEY

Barclays dismisses San Marino lawsuit

Barclays Capital will fight vigorously a lawsuit filed against it in London’s High Court by a banking client Cassa di Risparmio di San Marino, which alleges misrepresentation by the UK investment bank in the sale of complex debt products.

The San Marino-based bank is seeking damages of at least €170m (£134m) in losses and lost income related to five complex credit-linked notes bought by CRSM for €450m in 2004 and 2005.

It is also seeking unspecified damages related to the restructuring of three other complex notes in June 2005.

“The legal action has no merit and we will contest it vigorously,” Barclays said on Tuesday.

The suit is part of an increasing number of actions faced by banks over their complex credit products since the market turmoil that began last year led to widespread losses in the financial industry.

Lawyers said that many disgruntled clients are pursuing the banks that had arranged complex debt products, but that claims are mostly settled well before they near a court filing, which is seen very much as a last resort, particularly in Europe.

Barclays has faced a number of similar lawsuits over collateralised debt obligations it has structured and sold.

In 2005 it settled a $151m claim brought by HSH Nordbank of Germany.

HSH is also currently suing UBS, the Swiss bank, over alleged mismanagement of a $500m portfolio of collateralised debt obligations to London. The case, which is set to be heard in New York, was among the first to be filed over subprime mortgage losses in the wake of the credit crunch.

Barclays, meanwhile, is also named in a lawsuit filed this month by Oddo Asset Management of France in New York, which relates to two investment funds known as “SIV-lites”.

That suit also seeks damages from Solent, a London-based hedge fund that managed one of the investment funds, and from McGraw-Hill, the owner of Standard & Poor’s, the rating agency.

Bankers said Italy was beginning to discover the depths of its problems with structured products. Marco Elser, senior manager in Rome at Advicorp, an independent investment banking group, said: “Half of Italian banks don’t know what they have in their accounts, because the derivatives around which the structured products were sold are so complex that it would take an Einstein to figure it out.”

Additional reporting by Guy Dinmore in Rome
By Paul J Davies

Published: July 29 2008 19:05 | Last updated: July 29 2008 19:06
Copyright The Financial Times Limited 2008

The action above could be the first in an avalanche of law suits filed by investors who could feel a little hoodwinked by the avaricious banks and their rush to sell "products" to their clients in the headlong desire to make ever increasing profits from a "business" that should only be marginal at best.

When you run a business that has its hands in your pockets, the tendency is for it to help itself.

John Burke

Tuesday, 10 June 2008

Tuesday, 29 April 2008

Paper Money Madness and Political Bragging

From the Desk of Adrian Ash from Bullion Vault

Dear BullionVault user,

BLAME FOR THE credit crunch has landed squarely on the big Western banks, with government and the monetary authorities leading the finger-pointing.

This seems a bit rich. Government and central banks were the chief architects of the current difficulties. And as usual, their reaction to this crisis is just as wrong-headed as their reaction to the last crisis.

It's also certain to make the next crisis worse still.

Unfortunately for the US and Britain, the authorities remain too convinced of their own powers to see the truth of this. There they sit, Canute-like before a sea of economic reality. They truly believe they can command the tide.

After all, this was how they responded from 2001-2005, force-feeding money to the big banks and mortgage lenders at very low rates of interest.

Thus did Alan Greenspan and Ben Bernanke switch the Tech Stock Bubble for today's Subprime Crisis. Thus did Gordon Brown here in London encourage all those "unbroken years of growth" that he still loves to brag about. To perpetuate the feel-good factor, Brown continued pumping the UK economy with cheap money while preaching sanctimoniously about prudence.

And my, how he bragged! During the good times, Britain's unbroken growth all came down to Gordon's brilliance.

Funny, isn't it, how the downturn is now somebody else's fault?

But in economics, as in life, the hangover reflects the party. Creating artificial demand is sure to create exactly the situation we're in today.

So let's spell it out and see if Gordon and Ben can get it, before they and their wretched textbooks destroy the wealth of cautious savers and their children once more.

Whenever and wherever you find a surfeit of money, bankers will face a choice:

#1. Take the money and lend it; or
#2. Refuse the money and lose out.

The problem for banks – as for all financial companies during a bubble in money – is keeping up with the game. If they don't take the cheap money on offer, they will under-perform their competitors, and that will end in a take-over.

Another bank – making bigger profits by taking the cheap money – will buy out the laggard. That's how cautious banks caught playing it safe, rather than joining the fun, are dragged to the party regardless. Their kicking and screaming is drowned out by the clamor for "total shareholder returns".

So the reason the banks you now see around you all look like incautious buffoons is that, between 2001 and 2005, the US and European authorities created conditions in which only the incautious could prosper. Government killed off the cautious by pouring cheap money down the throats of the most aggressive banks.

Socialists and central planners just don't understand that you cannot command an economy onto such an unnatural path without later paying the price. Cheap money destroys caution and nurtures speculation. When the world is awash with it, banks must take ever bigger and bigger risks, or they will wither and die – it's as
simple as that.

The irony of the Bear Stearns' rescue seems lost on the media. Yet it was Bear Stearns that first signaled the start of today's crisis last June, when its "enhanced leverage" funds went bust. And if Britain's new banking bail-out works this time (and let's hope it doesn't) then no British bank will fail either.

The message will then echo round the City of London – as on Wall Street – that you simply must take all the cheap money on offer and punt it straight out to consumers and business.

By 2012 if not before, we could find the Bank of England effectively bankrupt, sitting on a pile of "quality" mortgages as collateral as house prices tumble from even higher peaks than last summer's top.

And the big investment banks? They will be pitching for a fresh rescue from their next over-priced speculation.

Wind-swept farmland? Ocean-floor mining? High-orbit solar panels...? Who knows what fresh nonsense the banks will be forced to finance in the government's scramble for un-ending growth. Who can guess at how much the banks – and then us - will lose as a
result. Such a slow-motion disaster, however, is baked in the crust when those in power subvert the economy to their own over-inflated egos.

Witness Argentina, Turkey and Zimbabwe already this decade. Now thanks to Gordon Brown's self-belief in his personal, hands-on management of the economy, the UK is thoroughly addicted to monetary stimulants.

The United States, of course, is strung out on Ben Bernanke's junk, first peddled by Alan Greenspan when Bill Clinton's White House proclaimed "It's the economy, stupid!" As in the UK, breaking this habit will hurt; the banks themselves warn of outright depression if taxpayers don't front up today.

But cold turkey, according to Keith Richards at least, is just five days of climbing the walls. (And the Stones' guitarist should know!) Whereas, if we stick with our habit, then it could soon be our turn to queue in the streets bearing armfuls of cash, fighting over the last loaf of bread in the shop.

The great private antidote to the Browns and Bernankes of this world remains gold. Those people owning it over the last couple of years now stand unaffected by the losses sweeping through financial markets.

Yes, it's come a little off the boil since mid-March, but the fundamentals remain stacked in gold's favor.

** Flat-to-falling production worldwide;
** Money creation still running amok;
** Growing investment demand from a very low base (particularly in the Far East);
** Rising inflation in your cost of living;
** Control-freaks running government; yes-men in charge of monetary policy.

It's always painful, of course, to buy something at twice the price it was just two and a half years ago. But markets – like gold mines – don't easily give up their riches.

What's hardest to do can often prove the best course.

This current lull in the gold price might just be your best chance.

Regards,
Adrian Ash
Research, BullionVault