Research Roundup: No More Lipstick
Research Recap predicted a financial hurricane if a solution to Lehman Brothers’ (NYSE: LEH) predicament was not announced this past weekend – but not several. Clearly the financial markets are getting to be more and more like the weather, with storms lining up behind each other to hit with unpredictable force and in unpredictable places.
With Hank Paulson and Ben Bernanke unwilling to supply any more government-issue lipstick to make Lehman sufficiently attractive, potential pig Merrill Lynch (NYSE: MER) figured they’d better nail down a date for the subprime prom. This made Bank of America (NYSE:BAC) chief Ken Lewis the individual winner (at least for now), already crowned the “New King of Wall Street” by CNBC, though Merrill boss John Thain is looking pretty clever for extracting a premium for his sickly bull. However this deal pans out, you have to give them credit for putting it together start-to-finish in less than 36 hours. For a transcript of their mutual lovefest conference call, click here.
The biggest loser without a doubt is Lehman’s Dick Fuld, apparently undone by his trader mentality that led him to gamble and lose. He could lose that title soon, now that AIG (NYSE:AIG) is in the crosshairs, edging out Washington Mutual, (NYSE: WM), at least for now. Current indications are that the government may be willing to do more to secure AIG’s future, given its importance in the insurance industry
Meanwhile, it is unclear exactly how much impact the 70-billion dollar mutual assistance fund put together by the big banks will have, but the mere fact of its creation in itself is sign of how perilous these times are. As The Economist points our in a typically succinct summary of the story so far, most analysts think that the deleveraging still has far to go. “Some question how much has taken place. Bianco Research notes that while the credit positions of the 20 largest banks have fallen by $300 billion, to $1.3 trillion, since the Fed started its special lending facilities, the same amount has been financed by the Fed itself through these windows.
In other words, instead of deleveraging, the banks have just shifted a chunk of their risk to the central bank.
Elswhere, FT Alphaville, and MarketMovers have ably delivered play-by-play color commentary.
The consensus seems to be that the stand-alone investment banking model is dead, as argued at Portfolio.com. CreditSights digs deep into the topic and sees diversified bank/brokers as the relative winners, lowering its price target for Morgan Stanley (NYSE: MS), maintaining it for Goldman Sachs (NYSE: GS) and Citigroup, (NYSE: C), while raising it for JPMorgan (NYSE: JPM) and Bank of America.
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