Lehman Brothers troubles deepened as it projected it would lose $2.8 billion in the second quarter—far more than already dour expectations—and announced it will dilute existing shareholders by 30 percent with a more-than-expected $6 billion in new capital. Financial stocks in general, and Lehman in particular, got hammered again yesterday, with the latter tumbling nearly 9 percent.
The Wall Street Journal says in the headline of its A1 story that the news “intensifies credit jitters,” though it emphasizes, as it has in recent days, that Lehman doesn’t face a Bear Stearns-like collapse of confidence, if for no other reason than the Federal Reserve’s backstop of liquidity. But as a signal of what still lays ahead for other banks, it’s not good, as The New York Times says on C1.
Analysts and investors who had been hoping the worst was over now seem resigned to a different reality—one that likely includes more bad loans, souring securities and much-needed capital infusions in the coming months.
The Journal writes that once the losses end, it’s still going to take a long time to get back to its earlier levels of profitability because much of the securitization business that brought in huge fees is gone and the company won’t be able to goose returns by leveraging up with nearly as much debt.
BS from the bosses
The Financial Times on page one quotes Lehman chief financial officer saying that the banks didn’t really need all the new money, it just wanted to “end the chatter about Lehman Brothers and let us get back to business.” Yeah, right. That kind of talk leads the WSJ and NYT to report that investors and analysts are questioning management’s credibility. We’d say so. If they don’t need the money but are diluting existing share value by 30 percent, shareholders ought to riot in the streets.
The FT’s Lex column sarcastically dismisses the CFO’s beyond-dumb argument and reports that by one estimate Lehman still has $65 billion in mortgage and leveraged loan debt just waiting to be written down. And the Journal’s Heard on the Street column calls BS on Lehman too, saying it is “far from out of the woods,” and gets the Quote of the Day:
And Lehman’s most-vocal critic, David Einhorn, manager of hedge fund Greenlight Capital, who has been short the stock, betting it will decline, remains dissatisfied. “They just raised $6 billion of capital that they said they didn’t need, to replace losses they said they didn’t have.”
In a separate Money & Investing cover story, the WSJ writes that Lehman’s loss came partly (the firm wouldn’t say how much) from two big commercial real-estate deals it made at the market peak.
Washington Mutual shares plummeted 17 percent to a sixteen-year low on an analyst report that predicts $27 billion in losses by 2011.
In death, as in life…
The Journal culls the securities filings to come up with a humdinger of a page-one article this morning. It’s another outrageous executive-compensation story—this one concerning “golden coffins,” which many execs (or more precisely, their estates) are due to get if they die in power.
The Journal unfolds a list of outrageous work-arounds for dead heads, including “severance,” non-compete clauses, and just flat out continuing to get paid for years after dying. The paper uses the particularly egregious package due Nabors Industries CEO Eugene Isenberg if he croaks—not all that unlikely since he’s seventy-eight. Dying gets his estate a so-called “severance” payment of $264 million, more than an entire quarter of profit for the firm. But there are plenty of other good anecdotes in here.
The CEO of Shaw Group gets a $17 million non-compete contract if he hits the pearlies, and Lockheed Martin’s chief took a million-dollar death payout even though he’s still very much alive. Perhaps more egregious is the Roberts family’s looting of Comcast. The estate of the father, who is on the board, and his wife stands to get $130 million when they kick over. The estate of the son, who is CEO, will get some $297 million if he dies.
The WSJ is getting this data because of strictures the Securities and Exchange Commission put in place a year and a half ago that allow more scrutiny of executive pay.Companies often say one goal of their pay packages is to keep executives from leaving. But “if the executive is dead, you’re certainly not retaining them,” says Steven Hall, an executive-pay consultant in New York.
The Journal quotes a study of big companies that found 17 percent of them had severance-style death benefits and 40 percent paid for CEOs’ life insurance. And it’s not like these folks haven’t been getting magnificently wealthy while they’re still upright. Isenberg’s reaped half a billion bucks in the last fifteen years, for instance.