American International Group, (AIG:
4:03pm 01/12/2009
Delayed quote dataAIG 1.54, -0.08, -4.9%) the New York insurer, is progressing in its efforts to wind down its financial-products unit, and may be verging on selling one business line shortly, The Wall Street Journal reported. But the executive tasked with managing the risks in the financial-products subsidiary, Gerry Pasciucco, still faces substantial challenges, including the prospect of further weakening in markets, the paper reported. Multibillion-dollar problems that arose from the financial-products unit nearly collapsed AIG and prompted a taxpayer bailout. Prior to joining AIG, Pasciucco, 48, had been vice chairman of the capital-markets group at Morgan Stanley, the paper reported.
Selasa, 13 Januari 2009
AIG near sale of unit; risk chief still has hurdles: Journal
Senin, 06 Oktober 2008
Citigroup, Wells May Carve Up Wachovia in Compromise, WSJ Says
Officials from the Federal Reserve and Treasury are involved in the talks while executives of Charlotte, North Carolina-based Wachovia have been excluded, the Journal reported, citing people familiar with the situation. Citigroup would get Wachovia's branches in the northeast and mid-Atlantic regions and Wells Fargo may take the Southeast and California, the newspaper reported. The asset-management and brokerage units would go to Wells Fargo.
Citigroup, the biggest U.S. bank by assets, is bidding for Wachovia while trying to rebuild after $61 billion of losses tied to the collapse of mortgage markets. The bank wants to buy parts of Wachovia for about $2.16 billion, while Wells Fargo is bidding about $15 billion for the whole company. Wachovia said Wells Fargo's bid is better for investors, workers and taxpayers because, unlike Citigroup, it doesn't rely on government aid.
Under the split being discussed now, neither New York-based Citigroup nor San Francisco-based Wells Fargo would get U.S. financial assistance, the Journal said.
The two suitors have spent the weekend wrangling in state and federal court over Wachovia, with Citigroup winning a New York state ruling on Oct. 4 that said it had the exclusive right to negotiate a takeover until Oct. 10. That ruling was overturned on appeal today, leaving the original expiration date of Oct. 6 in place.
``We are pleased that the unfounded order entered yesterday has been vacated,'' said a Wells Fargo statement. ``Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia.''
Competing Offers
The takeover battle began Sept. 29 when Citigroup made its bid with backing from the Federal Deposit Insurance Corp. to rescue Wachovia from declaring bankruptcy, according to documents provided by Citigroup. Wells Fargo, which said it was unable to complete a competing bid in time to be considered, returned with its higher offer later in the week, which Wachovia accepted.
Citigroup said this violated a signed agreement not to solicit new offers. New York State Supreme Court Justice Charles Ramos sided with Citigroup, and he extended the exclusive right to negotiate from the Oct. 6 expiration to Oct. 10 when he scheduled a hearing on the merits.
Wachovia said yesterday in a complaint filed in the U.S. district court in New York that FDIC Chairwoman Sheila Bair, who initially agreed to provide financial support to the Citigroup bid, later helped broker the deal with Wells Fargo.
`Serious Attention'
On Oct. 2 at about 7 p.m., Bair called Wachovia CEO Robert Steel and told him to expect a call from Wells Fargo Chairman Richard Kovacevich regarding the bank's offer of $7 a share, according to the complaint. Bair encouraged Steel ``to give serious consideration to that offer,'' according to the Wachovia court filing.
``Officials from both the Treasury Department and the Federal Reserve also contacted Wachovia's lead outside counsel to inform him that the offer from Wells Fargo was forthcoming and that Wachovia should give it serious attention,'' according to the complaint.
Andrew Gray, a spokesman for the FDIC, didn't return a message left on his mobile phone seeking comment.
`Simpler, Easier'
Steel said in a separate affidavit that he agreed to the Wells Fargo deal partly because the FDIC was threatening to put its banking operations into receivership if a ``definitive merger agreement'' with either Citigroup or Wells Fargo wasn't signed by Oct. 3.
Wachovia's discussions with Citigroup had ``proved extremely complicated and difficult,'' whereas Wells Fargo's offer was ``simpler, easier for shareholders to understand, more likely to close and more likely to receive shareholder approval,'' Steel said.
After Wachovia's board approved Kovacevich's offer, Bair and Steel together phoned Citigroup CEO Vikram Pandit to say that Wachovia had agreed to the Wells Fargo deal, Steel said.
Separately, U.S. District Judge John Koeltl put off ruling on whether Wells Fargo may proceed with its takeover bid. A hearing was set for Oct. 7, at which another federal judge will be asked to decide the case.
Federal Case
Wachovia took the case to federal court, and at the emergency hearing yesterday, David Boies, a lawyer for Wachovia, asked Koeltl to decide whether language in the $700 billion federal bailout law for the banking industry enacted last week permits Wells Fargo to make a new bid.
Koeltl said it ``appears'' Wells Fargo is correct, adding that a judge who is to be permanently assigned to the case this week may reach a different conclusion.
Wachovia spokeswoman Christy Phillips-Brown said the bank was ``pleased'' that the judge granted its request for a quick resolution, while Citigroup's Shannon Bell said the company was ``very pleased that Wachovia's motions for emergency injunctive relief and a temporary restraining order were denied.''
Citigroup dropped $4.15 to $18.35 on Friday in New York Stock Exchange composite trading, after having its biggest share decline in about 20 years. Wachovia rose 59 percent to $6.21. Wells Fargo declined 1.7 percent to $34.56.
Steel's Stake
Wachovia CEO Steel, 57, stands to benefit from any improvement in bids for Wachovia. Recruited from the Treasury department in July to rebuild the lender's credibility with investors, he bought 1 million shares of Wachovia stock for about $16 million two weeks after arriving at the company.
Wells Fargo's bid won endorsement from stakeholders including Davis Selected Advisers LP, the Dodge & Cox mutual fund group and the Sandler family, according to a statement.
The Sandlers sold Golden West Financial Corp. to Wachovia in 2006 for about $24 billion, when Wachovia was run by CEO Kennedy Thompson. The unit's option-ARM home loans have since been blamed for contributing to Wachovia's record quarterly losses and Thompson lost his job.
Sabtu, 27 September 2008
WaMu Seized by U.S., Assets Sold to JPMorgan in Record Failure
WaMu customers withdrew $16.7 billion since Sept. 16, leaving the Seattle-based bank ``unsound,'' the Office of Thrift Supervision said yesterday. Branches are open today and depositors have full access to their accounts, Sheila Bair, chairman of the Federal Deposit Insurance Corp., said.
The failure of WaMu, which has $188 billion in deposits, ratchets up pressure on lawmakers trying to piece together a rescue package for the nation's financial system. The government's inability yesterday to reach agreement on a bailout and the seizure of the biggest savings and loan sparked a sell- off of bank stocks, led by a 25 percent tumble in Wachovia Corp.
``All eyes are now on Wachovia,'' said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York.
WaMu collapsed as its credit rating was slashed to junk and its stock price tumbled. Facing $19 billion of losses on soured mortgage loans, the lender put itself up for sale last week. WaMu fired CEO Kerry Killinger on Sept. 8 and replaced him with Alan Fishman, who was awarded a $7.5 million signing bonus and $1 million salary.
JPMorgan became the biggest U.S. bank by deposits with the deal, acquiring WaMu's branch network for $1.9 billion.
``This is a fabulous franchise,'' JPMorgan Chief Executive Officer Jamie Dimon, 52, said in an interview. ``We think we got this at a price that protects us, where if we were wrong, it still protects us.''
Lehman, Merrill
WaMu is the latest casualty of a financial crisis that drove Lehman Brothers Holdings Inc. and IndyMac Bancorp out of business and led to the hastily arranged rescues of Merrill Lynch & Co. and Bear Stearns Cos., which was also absorbed by JPMorgan. WaMu in March rejected a takeover offer from JPMorgan that the savings and loan valued at $4 a share.
In most bank seizures, little or nothing is left for shareholders. WaMu, down 95 percent in the past year, dropped to 16 cents on the New York Stock Exchange.
David Bonderman's TPG Inc., which led a $7 billion capital infusion for WaMu earlier this year, lost most of its initial $2 billion investment. TPG, based in Forth Worth, Texas, said in a statement yesterday it was ``dissatisfied with the loss'' and that the WaMu investment was a ``small part of assets.''
Share Sale
New York-based JPMorgan said today it sold $10 billion of shares at $40.50 apiece. The bank rose 33 cents, or 0.8 percent, to $43.79 in composite trading at 10 a.m.
JPMorgan won't acquire WaMu's liabilities, including claims by shareholders and subordinated and senior debt holders, the FDIC said. JPMorgan paid $10 a share for Bear Stearns in March as the New York-based securities firm teetered on the brink of bankruptcy.
``This is one of the reasons I own JPMorgan: They're going to win from all this,'' Schutz said. ``They're taking on credit risk, but they're not taking on any debt obligations.''
JPMorgan will add branches in California, Washington and Florida, among other states, and will have 5,400 offices with about $900 billion in deposits, the most of any U.S. bank. The branches and credit cards will carry the Chase brand and will be integrated by 2010, JPMorgan said.
JPMorgan had 75 people involved in the transaction and ``bid to win'' because it wanted WaMu's assets, Dimon said on a conference call yesterday. JPMorgan used its own investment bank to value the mortgages, he said.
Bailout Support
Dimon also said on the conference call that he's in favor of the government's proposed $700 billion plan to prop up the banking industry, but didn't rely on it to complete the deal. The plan was jeopardized yesterday as congressional Republicans failed to agree on its details.
JPMorgan is taking on $176 billion in mortgage-related assets and writing down the value of it and other portfolios by about $31 billion, the company said. The bank will make a one- time payment of $1.9 billion to the FDIC as part of the deal.
Citigroup Inc., which had been among five potential acquirers, elected not to bid for WaMu because presumed loan losses outweighed benefits from the deposits, said a person familiar with the situation. Wells Fargo & Co., Banco Santander SA and Toronto-Dominion bank had expressed interest in buying all or parts of WaMu, said a person with knowledge of the process.
Earnings Forecast
The acquisition may add 50 cents a share to earnings in 2009, JPMorgan said in a statement yesterday. The firm said it may save $1.5 billion in pretax costs by 2010, offsetting the $1.5 billion it will take in merger-related charges. JPMorgan will close less than 10 percent of the combined retail shops.
WaMu had about 2,300 branches at the end of June. Its $310 billion of assets dwarf those of Continental Illinois National Bank and Trust, previously the largest failed bank, which had $40 billion ($83 billion in 2008 dollars) when it was taken over in 1984.
WaMu has $28.4 billion in outstanding bonds, with Capital Research and Management the largest debt-holder, Bloomberg data show. All three major credit agencies rate WaMu junk, the only company in the 24-member KBW Bank Index that's below investment grade.
During the past three quarters, WaMu lost $6.3 billion. It kept skidding even after joining a list of financial companies the U.S. Securities and Exchange Commission protected from short selling in an effort to stabilize stock markets.
`Commendable Stewardship'
``It is important to acknowledge that the largest U.S. thrift just failed and did so seamlessly with the commendable stewardship of the FDIC,'' Oppenheimer & Co. analyst Meredith Whitney wrote in a research note. ``Things could have played out much worse for all the deposit-taking parties involved.''
WaMu was the second-biggest provider of option ARMs, behind Wachovia Corp., with $54 billion held in its portfolio in the first quarter, according to Inside Mortgage Finance. Of the $230 billion in loans secured by real estate at the end of the second quarter, $16.9 billion were subprime mortgages. WaMu, which ranked sixth among U.S. mortgage companies last year, was the 11th-biggest subprime lender in 2006, according to Inside Mortgage Finance.
WaMu estimated losses of as much as $19 billion in the next 2-1/2 years. Standard & Poor's cut the bank's credit rating twice in nine days, leaving it at CCC. Fitch Ratings and Moody's Investors Service cut WaMu to junk this month and have BBB- and Ba2 ratings, respectively.
``There were extreme liquidity pressures on this institution exacerbated by some ratings downgrades,'' FDIC's Bair said.
Rise of WaMu
Killinger, WaMu's ousted CEO, joined Washington Mutual in 1982 when the company bought a securities firm. He was promoted to president in 1988 and CEO two years later, assuming control of a company with about $7 billion in assets.
Beginning in 1995, Killinger went on a shopping spree, making at least 14 acquisitions in the next seven years and boosting assets to more than $300 billion.
Between 1990 and the end of 2006, Washington Mutual shares jumped almost 20-fold, while the Standard & Poor's 500 Index quadrupled. Then the subprime rout started and defaults hit a record, as falling home prices and rising mortgage rates left borrowers with the weakest credit unable to repay their loans.
``There's a lot of sadness and a lot of people are hurt,'' Lee Lannoye, 71, who was chief credit officer at WaMu from 1988 to 1998, said yesterday. ``Having worked with Kerry Killinger for 10 years, I still absolutely cannot fathom where or why he went wrong, and what caused him to lead the company into taking the kinds of risks that they did.''
Minggu, 21 September 2008
Takeovers of AIG, Fannie and Freddie raise business and political questions
By agreeing to bail out insurance giant American International Group Inc. and mortgage lenders Fannie Mae and Freddie Mac, the federal government has put itself in the unprecedented position of running huge private companies. In the case of American International Group, or AIG, the government is now the majority shareholder, acquiring 80% of the company in exchange for lending it as much as $85 billion over two years to keep the business out of bankruptcy as it is dismantled.
"The government does not have a core competency to run an insurance company of the magnitude of an AIG," said David M. Walker, former head of the Government Accountability Office, the congressional watchdog agency. "It's clearly not going to be able to effectively manage AIG and do what needs to be done."
Top Bush administration officials say they authorized the controversial bailouts to prevent corporate failures that could have crippled the U.S. economy. But many details about how the government will run the companies, and for how long, are still being worked out.
Yet questions remain about what influence federal officials such as Treasury Secretary Henry M. Paulson -- who reportedly sought the ouster of AIG Chief Executive Robert Willumstad as a condition of the bailout -- will exert over the companies, and what role politics might play in their operation.
"When you have these things going on behind closed doors, it's a little disconcerting," said Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think tank in Washington. "When you do have sell-offs of the parts of AIG, we want to make sure that is done on a fair-market basis. You don't want to have sweetheart deals."
Still, given the dire financial problems faced by AIG, Fannie Mae and Freddie Mac, Baker said, it won't be difficult for the federal government to improve on their management.
"It's hard to see how they could do worse," he said.
The history of federal bailouts has been generally good, said Benton E. Gup, a finance professor at the University of Alabama and editor of the 2003 book "Too Big to Fail: Policies and Practices in Government Bailouts." The government even turned a $313-million profit on stock options it received when it provided $1.5 billion in loan guarantees to automaker Chrysler Corp. in 1980, he noted.
In those bailouts, however, the government did not take control of the companies. It simply provided guarantees for loans. The Federal Reserve and Treasury did the same thing in March when they authorized $29 billion in loan guarantees to JPMorgan Chase & Co. to facilitate its purchase of struggling brokerage Bear Stearns Cos.
But the bailouts of AIG, Fannie Mae and Freddie Mac are new territory, fueled by an attempt to avoid a global financial disaster.
"They are not taking over because they believe they can manage them better, but rather because it's a way to provide a government guarantee," said Pablo Spiller, a professor of business and technology at UC Berkeley. "This is the biggest financial crisis in the last 80 years."
The subprime mortgage mess crippled Fannie Mae and Freddie Mac, private companies known as government-sponsored enterprises because they were originally chartered by the federal government. Many investors believed the companies -- which buy mortgages from savings and loans, banks and other lenders to generate more cash for those lenders to make more home loans -- had the implicit financial backing of Washington.
Two weeks ago, the federal government seized control of the companies. The Treasury Department plans to buy as much as $100 billion in stock in each, expand their portfolios of mortgages and mortgage-backed securities until 2010, then slowly reduce their holdings.
To do that, the government placed Fannie Mae and Freddie Mac into a conservatorship run by the Federal Housing Finance Agency, a body created by Congress this summer. Paulson said having a government-appointed conservator was the only way he would commit taxpayer money to the bailout.
The agency's director, James Lockhart, appointed new CEOs and board chairmen after consulting with the Treasury Department. The conservator cannot liquidate the companies, but otherwise has full power to run them. But President Bush's successor is likely to appoint a new director of the agency, who will run the conservatorship, as well as a new Treasury secretary.
In the AIG bailout, the government received 80% of the stake in exchange for loans from the Federal Reserve that kept the company from bankruptcy. The Federal Reserve Board, which authorized the bailout, said the loan was designed to let the company sell some assets "in an orderly manner."
The government appointed Liddy as CEO and probably will replace the board. The government will have veto power over major corporate decisions, including whether to pay dividends to shareholders.
"They've appointed a very capable executive who was the head of another major insurance company," Schumer said. "Most of the parts of AIG are still making money. . . . So the idea is to keep the mainstay, this biggest American insurance company, still working." AIG is the largest U.S. insurer as measured by assets and the second-largest by premiums.
"We want to make sure they don't damage the health of the insurance properties," said California Insurance Commissioner Steve Poizner, a member of the working group. Five AIG companies are headquartered in the state, and 25 others do business there.
Daniel J. Mitchell, a senior fellow at the Cato Institute, a libertarian Washington think tank, opposed the AIG bailout. But he said U.S. officials were making responsible decisions about how to run the firms.
So far, it does not appear that political affiliation has played a role in placing executives at the companies.
Liddy has given campaign money to Bush and Republican presidential nominee John McCain, according to contribution data from the Center for Responsive Politics. David M. Moffett, the new Freddie Mac CEO and a former chief financial officer of U.S. Bancorp, has contributed to GOP congressional candidates.
But new Fannie Mae CEO Herbert M. Allison Jr., who was chairman of investment firm TIAA-CREF, has contributed to Republicans and Democrats, including Democratic presidential nominee Barack Obama. New Fannie Mae Chairman Philip Laskawy, who served as chairman and CEO of accounting firm Ernst & Young, has given most of his contributions to Democrats. And new Freddie Mac Chairman John Koskinen, former president of the U.S. Soccer Foundation, worked in the Clinton White House.
Still, Rep. Tom Feeney (R-Fla.) said politics was bound to play a role in how federal officials run the companies. And that's one reason he opposed the bailouts.
"Government's not equipped to successfully run any of these entities," he said. "We will do a lousy job. Worse than they did."
Sabtu, 20 September 2008
Lehman's European Units Are Close to Finding Buyer (Update2)
Lehman Brothers Holdings Inc.'s European corporate finance and asset management units are close to finding a buyer after their U.S. parent filed for bankruptcy.
``We are in discussions with interested parties to sell the Lehman Brothers Asset Management and Corporate Finance businesses,'' Dan Schwarzmann, a partner at Lehman's European administrator PricewaterhouseCoopers, said in a statement today. ``Our aim is to complete a deal in the next few days.''
Banks worldwide are picking over Lehman's remains and headhunters are targeting its employees after the 158-year-old firm filed for bankruptcy on Sept. 15. London-based Barclays Plc agreed this week to buy Lehman's North American investment- banking unit for $1.75 billion, while Sumitomo Mitsui Financial Group Inc. is in talks to buy some of Lehman's Japanese units.
``We are in deliberations with about half a dozen parties right now,'' Schwarzmann said in a telephone interview. ``Client contracts are still valid and the employees are still working. If the team does start disintegrating, there will be a loss of value.''
Barclays is in talks to take over parts of Lehman's equities business in Europe, Barclays President Robert Diamond said earlier this week. Nomura Holdings Inc., Japan's biggest securities firm, is among other potential buyers. Lehman employs about 4,500 people at headquarters in London's Canary Wharf.
Bids for Lehman's European unit were due today, two people familiar with the talks said. It's still possible discussions may break down, they added.
Corporate Advisory Unit
Lehman's London-based corporate finance unit employs about 700 people while asset management employs almost 200, he added. Lehman placed four of its European units in administration on Monday.
Separately, PwC today said Lehman owns at least $15 billion of property assets in Europe that are for sale. Most of the properties are located in the U.K. The rest are in countries including Sweden, France, Finland, Spain and Croatia, PwC said.
Lehman is ranked 12th in European merger advisory work this year, down from seventh in 2007, according to data compiled by Bloomberg. The bank helped advise Continental AG, Europe's second largest car parts maker on a bid from Schaeffler Group, and Aluminum Corp. of China on its stake-building in Rio Tinto Group this year.
Senin, 15 September 2008
Liberals pledge $250M to battle beetles
Albertan communities and groups bitten by the mountain pine beetle scourge cautiously welcomed a campaign trail pledge by the federal Liberals Sunday to commit $250 million to help combat the spread of the bug.
But Gary Lunn, the Tory natural resources minister, blamed the beetle problem on the "negligence" of Jean Chretien's Liberal majority government in the mid-1990s. The Liberals could have stopped the beetles, he said, by cutting down "a few blocks" of trees in central B.C.'s Tweedsmuir Provincial Park where the latest infestation may have begun in 1998.
"Nobody had the courage to do it because it was in a park," he said. "They're coming to the table 10 years too late. We've been cleaning up their mess."
Almost simultaneously, several stands of forest across the north central and southern part of the province became infested with beetles. But in 2006, the Tories committed $1 billion over 10 years to battle the bugs.
Grit insiders say their pledge would be a key part of a wider initiative a Liberal government would take after "extensive" consulting with the forestry sector. This would include a national forestry summit to form a strategy that would ensure the sector is economically and environmentally sustainable. The Liberal pledge would also be used to protect jobs, homes and communities.
"Canada's forestry industry is facing tremendous challenges," Ujjal Dosanjh, the Liberal candidate for Vancouver South, said in a statement.
The Grits would not offer specifics on how the money would be divvied up between the provinces. But Liberal spokesman Daniel Lauzon said in an e-mail that the Liberals' plan would "obviously include addressing the needs of Alberta and Albertans."
The mountain pine beetle has already ravaged forests in British Columbia and has crossed into Alberta, threatening jobs and increasing the risk of forest fires near communities.
Winter cold snaps have kept northern Alberta's beetle population at bay, but they are eating away in the Canmore and Crowsnest Pass areas.
For the past two years, Alberta's Ministry of Sustainable Resource Development has declared an emergency to tap into more beetle funding. This year the province budgeted $55 million, after spending $50 million in emergency funding last year.
The province is trying to keep the insect from expanding through Alberta's northern boreal forest and heading east across most of Canada.
John Irwin, the mayor of Crowsnest Pass and chairman of the province's pine beetle advisory committee, considers that "the greatest ecological threat this country has ever known."
Forestry advocates, such as the Alberta Forest Products Association, welcomed the Liberals' funding news -- as long as Alberta gets its fair share of the money.
"We have to keep the pressure up on the beetles," said Dave Kmet, the forestry director for AFPA.
But Cliff Wallis, vice-president of the Alberta Wilderness Association, is worried the Liberal money would just go to cutting down more forests, reducing habitat for wild animals, but failing to stop the tree-eating bugs.
"I don't know the details of the program, but if it's fighting pine beetle it's money that's being unwisely spent. . . . The problem is our land management, climate change and fire management."
Sabtu, 13 September 2008
Cisco to outline long-term growth strategy next week
Chief Executive John Chambers is expected to reassure the market that Cisco will eventually return to its annual revenue growth target of 12 to 17 percent as increasing Internet traffic boosts sales of routers and switches, analysts said, even if it has fallen short in recent quarters.
He also is expected to highlight progress in new technologies such as Cisco's high-definition, Web-based video conferencing system called TelePresence, and its data center virtualization services.
Cisco has grown into a $40 billion business from $1 billion since Chambers took the CEO role in 1995, and analysts credit his ability to seize growth opportunities through acquisitions and development of new technologies.
"As in years past, we believe Cisco will underscore its ability to capture market transitions, while identifying and quantifying future opportunities," Lehman Brothers analyst Jeff Kvaal said in a report this week.
"Specifically, we look for management to dig deeper into its data center strategy," he said.
Cisco said in a statement earlier this week that executives would provide overviews of the company's financial "roadmap" and long-term strategy, which focuses on innovation
Data center "virtualization," or using advanced technologies to run networks and servers more efficiently, is seen as a key growth area for Cisco as large businesses, and Internet and telecommunications service providers upgrade their facilities to handle increasing Internet use.
Cisco stepped up its foray into data center virtualization by taking a small stake in VMware Inc (VMW.N: Quote, Profile, Research, Stock Buzz) in 2007. VMware's virtualization software allows one machine to do the work of multiple computers by running "virtual" servers.
The analyst meeting comes amid worries about the U.S. banking sector and fears of a prolonged economic slump, with recent data showing the U.S. jobless rate at a 5-year high.
While routers and switches are still the core of Cisco's business, Standard & Poor's analyst Ari Bensinger said that with the company already the dominant vendor in those areas, interest is shifting to other areas.
"Routing and switching... there's not much room for more market share in terms of those markets," said Bensinger. "They're basically mature."
TARGETS AND ACQUISITIONS
Goldman Sachs analyst Simona Jankowski earlier this week said the conference could provide a "positive catalyst" for the shares, which are down 28 percent from a year earlier.
On the other hand, any comment from Chambers suggesting a prolonged slowdown would come as a blow. The company has forecast 8 percent annual revenue growth in the current quarter and 8.5 percent the next. Revenue rose around 10 percent in the past two quarters.
Acquisitions have been a key part of the San Jose, California-based company's growth, including its 2006 purchase of cable set-top box maker Scentific-Atlanta and a deal last year for Web conferencing services firm WebEx.
With over $20 billion in cash and fixed income securities at the end of its last quarter ended July, analysts say it certainly has the means.
Rumored targets include VMWare and its majority owner and data storage company EMC Corp (EMC.N: Quote, Profile, Research, Stock Buzz), as well as Cisco's smaller and more specialized rivals like Brocade Communications Systems Inc (BRCD.O: Quote, Profile, Research, Stock Buzz). Cisco has declined comment on such speculation.
Ex-Intel Worker Charged With Stealing Secrets
A former Intel (NASDAQ: INTC) engineer is facing charges of stealing trade secrets from his former employer after taking a new job at archrival Advanced Micro Devices (NYSE: AMD).
The FBI unsealed a criminal complaint Tuesday alleging that Biswahoman Pani, of Worcester, Mass., had copied confidential Intel documents -- including 13 designated top-secret and containing highly sensitive design plans for future processors, The Boston Globe reported.
After accepting a position at AMD but prior to leaving Intel, he allegedly downloaded the documents using his corporate laptop while on vacation, according to the Globe report. The charges were filed in the U.S. District Court for the District of Massachusetts in Boston.
"We're aware of the charges facing this individual," Intel spokeswoman Claudine Mangano told InternetNews.com. "Upon learning about potential issues involving this individual, Intel asked the Department of Justice and the FBI to investigate." Apart from adding that Intel believes in protecting its intellectual property, she declined further comment because the investigation is pending.
R. Bradford Bailey, Pani's attorney and a partner at law firm Denner Pellegrino, told InternetNews.com that his client "maintains his innocence and plans on vigorously defending the charges in this case."
Bailey said a probable cause hearing has been scheduled for Sept. 22 in U.S. District Court, but thinks the prosecution will try to proceed by grand jury and try to get an indictment prior to the probable cause hearing. Otherwise, the attorneys would be expected to publicly share some of the information they have against Pani.
According to The Boston Globe, FBI Special Agent Timothy Russell of the bureau's Boston computer crime squad filed an affidavit saying more than 100 pages of sensitive Intel documents and 19 computer aided design (CAD) drawings were found when Pani's house was searched July 1.
But a few hours later, Pani handed in his resignation, saying he was interested in taking a job with a hedge fund. Pani said he would leave the company on June 11, and would be on vacation until that date, but that his wife would continue to work at Intel, according to the Globe report.
The FBI's Russell said in his affidavit that Pani had already approached AMD about working there, and began working at AMD on June 2, while he was still on vacation from Intel, The Boston Globe continued. Intel called in the FBI after an employee learned about Pani's having joined AMD. It also ordered a check of the computer system to see if Pani had accessed confidential documents.
The incident illustrates how many security breaches often happen on the inside of corporations.
San Francisco learned this the hard way recently when system administrator Terry Childs allegedly held the city network hostage by assuming control over all the passwords and user names. Childs is in jail awaiting trial, but actions he took that the city confirmed continue to haunt its IT department.
It also shows that, just because a business is in compliance with regulations, that does not mean it is safe. "Intel has probably passed its SOX (Sarbanes-Oxley) regulatory compliance tests for years, but if the scope of the regulation isn't broad enough, that doesn't mean you're safe, Brian Cleary, vice president of marketing at enterprise access governance vendor Aveksa told InternetNews.com.
"Companies must think about what is the right way to deprovision an employee who has left," Cleary added. Deprovisioning is the process of removing someone's access to corporate computer systems and the network and to offices and other equipment. Accounts that have not been deprovisioned, or orphaned accounts, can cause a huge problem in the enterprise.
Lehman and Its Staff Await Next Step
As rank-and-file employees confronted an uncertain future — many of them expect to be laid off if a deal is struck — top executives huddled in all-day meetings and braced for takeover bids, expected by Saturday afternoon.
Leading contenders include Bank of America and Barclays, the large British bank, but a significant possibility remained that no deal would be reached over the weekend. If Lehman fails to find a buyer, the bank will be left in the difficult position of trying to survive on its own or will file for bankruptcy.
It remained unlikely that the federal government would move to support any sale of Lehman, as it did when JPMorgan Chase rescued Bear Stearns from the brink of bankruptcy in a fire sale in March. Rather than offer any financial support, the government has simply urged Lehman to conclude a deal by Sunday evening and has helped push potential suitors to the bargaining table.
Meanwhile, however, the Federal Reserve of New York summoned government officials to its offices for an emergency meeting with Wall Street executives to discuss a possible solution to the Lehman crisis.
As a possible sale loomed and Lehman’s share price continued to decline, executives at the firm told employees to keep working. But some bankers and traders left early to watering holes like Bobby Van’s Steakhouse and Tonic, a bar near Lehman’s neon-soaked headquarters.
Lehman, which has lost nearly $7 billion in the last two quarters, mainly because of declines in the value of its vast real estate holdings, made no public comments. The silence, in addition to concern that no deal may emerge, sent shares in the bank down 14 percent, to $3.65, on Friday. The shares have fallen 94 percent this year as investors lost confidence in Lehman’s ability to survive on its own.
In one twist, Lehman employees, who own large chunks of the bank’s stock, received the usual blackout notice on Friday, saying they could not sell shares in the weeks surrounding the bank’s earnings announcement.
Lehman said Wednesday that it expected to lose $3.9 billion in the third quarter. The numbers are not final until they are submitted to the Securities and Exchange Commission later this month. With the shares trading near the penny-stock level, few inside Lehman are likely to be eager to sell.
Also on Friday, Lehman received bids for a majority stake in its investment management division. A sale of the stake was part of the plan Lehman announced Wednesday in its effort to convince investors it could survive on its own.
Bidders are thought to include the private equity groups Kohlberg Kravis Roberts, Bain Capital, Clayton Dubilier & Rice and Hellman & Friedman. Lehman is thought to be seeking around $5 billion for the stake.
Should no buyer emerge for the whole bank, Lehman would have to return to its original plan of selling the stake and spinning off about $30 billion in troubled commercial real estate assets into a separate “bad bank” structure to be owned by Lehman shareholders.
Investors and analysts largely dismissed that plan on Wednesday as inadequate, leading to the talks to sell the whole bank.
As the auction process plays out over the weekend, people close to the matter said one tactic Barclays might employ would be to prepare a bid that did not require any government support. That would be based on the theory that Bank of America, which is still absorbing Countrywide, the large home mortgage lender it acquired, will want some kind of government backing of Lehman’s toxic real estate assets.
Lehman, Bank of America and Barclays declined to comment.
It also remained possible that some kind of consortium group could emerge to bid for Lehman and break it into parts.
One person close to the matter said J. C. Flowers & Company, the private equity group, might try to take part in a consortium effort. The group, led by J. Christopher Flowers, also looked at investing in Bear Stearns before it was sold to JPMorgan Chase. Officials from J. C. Flowers could not be reached for comment.
While some analysts suggested Bank of America might not be able to absorb both Lehman and Countrywide, others said it was the most natural owner.
“Lehman needs Bank of America to lower its borrowing costs. It also needs the bank to portfolio its commercial real estate loans,” Richard X. Bove, an analyst at Ladenburg Thalmann & Company, said in a note to clients.
“Most important, Lehman can gain access to Bank of America’s 68,000 commercial customers to sell capital markets products,” he said. “Further, Lehman would meaningfully increase its fixed-income business if it was linked to the country’s largest credit card and mortgage company.”
Bank of America, meanwhile, “gets access to one of the best fixed-income trading desks in the country,” Mr. Bove said. “It immediately becomes a first-rank player in the equity investment banking sector.”
Lehman’s Fate Weighed in Urgent Talks
It was no ordinary Friday at Lehman Brothers. “You Shook Me All Night Long” by AC/DC blared from speakers inside the bank’s Midtown headquarters. Employees polished résumés. And, by midafternoon, the word came from the 31st floor: the fate of the stricken bank would be decided by Sunday.
As rank-and-file employees confronted an uncertain future — many of them expect to be laid off if a deal is struck — top executives huddled in all-day meetings and braced for takeover bids, expected by Saturday afternoon.
Leading contenders include Bank of America and Barclays, the large British bank, but a significant possibility remained that no deal would be reached over the weekend. If Lehman fails to find a buyer, the bank will be left in the difficult position of trying to survive on its own or will file for bankruptcy.
It remained unlikely that the federal government would move to support any sale of Lehman, as it did when JPMorgan Chase rescued Bear Stearns from the brink of bankruptcy in a fire sale in March. Rather than offer any financial support, the government has simply urged Lehman to conclude a deal by Sunday evening and has helped push potential suitors to the bargaining table.
Meanwhile, however, the Federal Reserve of New York summoned government officials to its offices in New York for an emergency meeting with Wall Street executives to discuss a possible solution for the Lehman crisis.
As a possible sale loomed and Lehman’s share price continued to decline, executives at the firm told employees to keep working. But some bankers and traders left early to watering holes like Bobby Van’s Steakhouse and Tonic, a bar near Lehman’s neon-soaked headquarters.
Lehman, which has lost nearly $7 billion in the last two quarters, mainly because of declines in the value of its vast real estate holdings, made no public comments. The silence, in addition to concern that no deal may emerge, sent shares in the bank down 14 percent, to $3.65, on Friday. The shares have fallen 94 percent this year as investors lost confidence in Lehman’s ability to survive on its own.
In one twist, Lehman employees, who own large chunks of the bank’s stock, received the usual blackout notice on Friday, saying they could not sell shares in the weeks surrounding the bank’s earnings announcement.
Lehman said Wednesday that it expected to lose $3.9 billion in the third quarter. The numbers are not final until they are submitted to the Securities and Exchange Commission later this month. With the shares trading near the penny-stock level, few inside Lehman are likely to be eager to sell.
Also on Friday, Lehman received bids for a majority stake in its investment management division. A sale of the stake was part of the plan Lehman announced Wednesday in its effort to convince investors it could survive on its own.
Bidders are thought to include the private equity groups Kohlberg Kravis Roberts, Bain Capital, Clayton Dubilier & Rice and Hellman & Friedman. Lehman is thought to be seeking around $5 billion for the stake.
Should no buyer emerge for the whole bank, Lehman would have to return to its original plan of selling the stake and spinning off about $30 billion in troubled commercial real estate assets into a separate “bad bank” structure to be owned by Lehman shareholders.
Investors and analysts largely dismissed that plan on Wednesday as inadequate, leading to the talks to sell the whole bank.
As the auction process plays out over the weekend, people close to the matter said one tactic Barclays might employ would be to prepare a bid that did not require any government support. That would be based on the theory that Bank of America, which is still absorbing Countrywide, the large home mortgage lender it acquired, will want some kind of government backing of Lehman’s toxic real estate assets.
Lehman, Bank of America and Barclays declined to comment.
It also remained possible that some kind of consortium group could emerge to bid for Lehman and break it into parts.
One person close to the matter said J. C. Flowers & Company, the private equity group, might try to take part in a consortium effort. The group, led by J. Christopher Flowers, also looked at investing in Bear Stearns before it was sold to JPMorgan Chase. Officials from J. C. Flowers could not be reached for comment.
While some analysts suggested Bank of America might not be able to absorb both Lehman and Countrywide, others said it was the most natural owner.
“Lehman needs Bank of America to lower its borrowing costs. It also needs the bank to portfolio its commercial real estate loans,” Richard X. Bove, an analyst at Ladenburg Thalmann & Company, said in a note to clients.
“Most important, Lehman can gain access to Bank of America’s 68,000 commercial customers to sell capital markets products,” he said. “Further, Lehman would meaningfully increase its fixed-income business if it was linked to the country’s largest credit card and mortgage company.”
Bank of America, meanwhile, “gets access to one of the best fixed-income trading desks in the country,” Mr. Bove said. “It immediately becomes a first-rank player in the equity investment banking sector.”
U.S. Has Tough Love for Lehman
Six months ago, the Federal Reserve lent JPMorgan Chase & Company $29 billion to engineer its shotgun takeover of Bear Stearns, the venerable but deeply troubled Wall Street firm.
Less than one week ago, the Treasury pledged up to $200 billion to rescue Fannie Mae and Freddie Mac, the giant mortgage finance companies.
But as policy makers tried to engineer an eerily similar takeover and rescue for Lehman Brothers, Treasury and Fed officials told the company and its potential suitors on Friday that the government had no plans to put taxpayer money on the line.
Perhaps the biggest reason for the sang-froid is that Fed officials as well as Wall Street institutions had months of advance warning about Lehman’s problems and far more time than they had with Bear Stearns to assess the potential domino effects, or “systemic risk,” that a collapse might pose.
By the time Lehman’s shares went into a spiral this week, Fed and Treasury officials were convinced that Lehman posed far fewer real risks than Bear Stearns had back in March.
The confidence by Washington officials stemmed from the fact that, after the Bear Stearns collapse, they obtained stronger regulatory powers that gave them the ability to peer into the activities and risk exposures of institutions on Wall Street.
Fed officials, for example, are now embedded at each of the big Wall Street investment banks and have at least some capacity gauge the firms’ exposure to hedge funds and other big players, as well as their positions in financial derivatives and other opaque markets. Fed and Treasury officials have also been taking the daily pulse of executives and traders on Wall Street for months, and much of that discussion has been about Lehman.
Officials detected a rising number of defections by Lehman’s institutional customers to other firms, but nothing near the panic that caused Wall Street executives to bombard the Treasury secretary, Henry M. Paulson Jr., with dire warnings about a Bear Stearns collapse in March.
Fed officials also saw few signs that fears about the future of the investment bank were spilling over to fears about its customers and trading partners.
Bloomberg News reported that the prices of credit-default swaps, used to insure against losses on a bond default, for financial institutions like Goldman Sachs and Morgan Stanley were below the record highs they reached when Bear Stearns was collapsing in March. The cost of credit insurance is an indicator of investor anxiety.
Experts cautioned that Washington officials might yet capitulate, and people close to the talks said it remained possible that any deal Lehman might reach this weekend to sell itself to one or more suitors could still unravel.
And in practice, taxpayers could still end up on the hook for at least as much money as they were in the case of Bear Stearns. Lehman’s successor will still be able to borrow from the Fed’s new lending program for major investment banks, which the Fed created in response to the collapse of Bear Stearns in March. If Lehman were to borrow money and then default on its loans, the Fed’s losses would reduce the amount of money it turns over to the Treasury.
For political and economic reasons, both the Federal Reserve and the Treasury Department are loath to save financial institutions from their own folly.
But as the housing crisis has deepened, they have abandoned free-market orthodoxy, fearing that the collapse of institutions like Bear Stearns or either Fannie Mae or Freddie Mac could cripple the financial markets, and perhaps the economy itself.
Treasury and Fed officials are still making up the rules as they go and relying heavily on judgment. If they do see a panic in the marketplace, the hard talk about tough love is likely to evaporate.
One of the biggest differences between the challenge facing Lehman and the one that faced Bear Stearns is the availability of the Fed’s emergency lending program for investment banks.
When confidence evaporated in Bear, with major hedge funds pulling their prime brokerage accounts, Bear’s financing ran out almost overnight, creating a panic situation. Lehman has had the power to plug any cash shortfalls by borrowing from the Fed, though it has not actually borrowed any money from the program since March.
Fed officials would much rather that Lehman or the company that acquires it stay away from its the lending program, because the Fed would be forced to hold collateral from Lehman in the form of hard-to-sell assets, like mortgage-backed securities.
The more the central bank’s balance sheet becomes loaded with less-liquid assets, like mortgage-backed securities, the less flexibility it has to increase the supply of cash to counter unexpected economic shocks. The Federal Reserve is already holding $29 billion worth of securities from Bear Stearns, and it has been lending hundreds of billions of dollars in exchange to banks and other depository institutions.
Treasury and Fed officials appear to be seeking the kind of solution for Lehman that the Fed engineered for Long Term Capital Management, the huge hedge that collapsed and set off shock waves across the financial markets. In that case, officials at the Federal Reserve Bank of New York coaxed some of the hedge fund’s biggest creditor banks into providing enough capital to get through the crisis. No public money was involved.
Industry analysts said Lehman’s financial position was less acute than that of Bear Stearns last March, in part because Lehman has not relied nearly as much on short-term funding that can evaporate if customers become nervous.
“We can think of Lehman as a company that is in an emergency room and is on a Fed ‘ventilator’ that keeps funding flowing to it,” said Brad Hintz, an analyst at Sanford Bernstein. “The challenge is getting off the ventilator. Right now there is no easy way for the firm to do it itself.”
Despite their professions of outward calm, Fed and Treasury officials were working intensively to hammer out a deal for Lehman by Sunday evening, hopefully before Asian markets open.
Even if the government does not provide any money to smooth the deal, officials may well agree to relax some of their rules for potential suitors. Bank of America, for example, would be likely to ask for temporary relief from the minimum-capital requirements on banks. Bank of America is also bumping up against federal rules that prohibit banks from controlling 10 percent of all deposits in the country.
If any concessions on capital requirements were temporary, they would pose little risk to taxpayers. But if they were offered over an indefinite period, they would add to the financial risks that already threaten to overwhelm the Federal Deposit Insurance Corporation.
Not all of Wall Street was sanguine about the government’s position. “We do not believe the central bank can allow a broker to fail as this would release an avalanche of unquantifiable systemic risk into the global bond markets and the Federal Reserve clearly does not want this to happen,” Mr. Hintz, the analyst, wrote in a report last week.
Kamis, 11 September 2008
Pentagon defers decision on air tankers
The Pentagon has postponed a contentious battle to supply the military with refuelling tankers and passed it to the next administration after deciding that the "charged environment" prevented a fair competition being completed before President George W. Bush leaves office.
Boeing, which had succesfully protested against the Pentagon's decision this year to award European rival EADS the contract to supply the USAF with new tankers, welcomed the decision. Northrop Grumman, EADS's US partner, said it was "extremely disappointed". Louis Gallois, chief executive of EADS, said he was "disappointed" and reiterated the company and Northrop had "a contract and will seek an appropriate conclusion to that contract".
He added that the decision would nevertheless have no impact on EADS sales or earnings as it had not been included in its plans.
The move means the next president, who takes office in January, will decide which aircraft replaces the ageing fleet of refuelling tankers. "Over the past seven years, the process has become enormously complex and emotional, in no small part because of mistakes and missteps along the way by the department of defence," said Robert Gates, defence secretary.
"We can no longer complete a competition that would be viewed as fair and objective in this highly charged environment."
Mr Gates said the resulting "cooling off" period would allow the next president to determine how to proceed with replacing the ageing fleet of Eisenhower-era refuelling tankers.
The Pentagon decision appears to have taken EADS by surprise. Mr Gallois was in Berlin on Tuesday, assuring government officials that there was still all to play for in the $35bn competition.
The Franco-German aerospace and defence group had expected the Pentagon to issue its final requirements for the hotly fought competition this week.
In a surprise move this year, the Pentagon awarded the tanker deal to Northrop and EADS, replacing Boeing, which had supplied the military with refuelling tankers for decades. But the Pentagon scrapped the deal when a congressional oversight body upheld a Boeing protest after finding errors with the air force competition.
The Pentagon originally planned to reopen the competition this week, and choose a winner this year. But Boeing threatened to not offer a tanker unless more time was provided to consider the requirements for the aircraft.
The Pentagon decision to return to the drawing board is yet another setback for a procurement process that first began more than seven years ago and has been mired in politics.
The tanker saga has already cost the careers of two Boeing executives and several Pentagon officials.
General Arthur Lichte, head of the military command that oversees tankers, last week said he did not care which tanker won the competition, but he stressed that the Pentagon needed to move forward quickly.
Rabu, 10 September 2008
Lehman's Fuld Faces Pressure to Land Deal After Drop (Update1)
oLehman Brothers Holdings Inc.'s Richard Fuld, the longest-serving chief executive on Wall Street, is under increasing pressure to seal an agreement for a capital infusion and unload hard-to-sell mortgage investments after the company's stock suffered a record decline yesterday.
Lehman, the fourth-largest U.S. securities firm, issued a statement late yesterday, saying it will report third-quarter financial results today at about 7:30 a.m. in New York, a week earlier than planned. The investment bank also promised to disclose ``key strategic initiatives.''
``Time is of essence to Lehman,'' said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania ``It's all about momentum, which has been against them, and Fuld needs to reverse it before it snowballs into an avalanche that buries his firm.''
Lehman, which has lost 88 percent of its stock-market value this year, fell 45 percent in New York trading yesterday after talks with Korea Development Bank about a capital infusion ended. The Korean bank is one of several companies that Lehman has been in discussions with in recent weeks, a person familiar with the negotiations said, declining to name the other potential bidders.
South Korea's Yonhap news reported today that Korea Development is in talks to buy more than 25 percent of Lehman for about $6 billion, citing an executive at the Korean bank it didn't name. Korea Development spokesman Sung Joo Yung declined to comment by phone in Seoul.
The New York-based bank was also continuing talks with private-equity firms including Kohlberg Kravis Roberts & Co. and Carlyle Group about selling its asset-management business, which includes fund manager Neuberger Berman, the person said before Lehman released its statement yesterday.
Devalued Assets
Nomura Holdings Inc., Japan's biggest investment bank, may bid for a stake in Lehman, the Yomiuri newspaper cited Nomura President Kenichi Watanabe as saying last week. Michiyori Fujiwara, a Tokyo-based Nomura spokesman, declined to comment.
Lehman has been trying to raise capital and shed devalued real-estate assets that contributed to the firm's $2.8 billion loss last quarter and saddled the company with $8.2 billion in writedowns and credit losses in the past year. Analysts including Merrill Lynch & Co.'s Guy Moszkowski predict Lehman will report more writedowns and losses today.
Once the biggest U.S. underwriter of mortgage-backed securities, Lehman was stuck with the assets after two Bear Stearns Cos. hedge funds that invested in the instruments collapsed in July 2007, causing the market to freeze.
`Lifelines'
The ensuing credit contraction ultimately led to the takeover of Bear Stearns, once the fifth-biggest U.S. securities firm, by JPMorgan Chase & Co. in March for $10 a share in a deal backed by the U.S. Federal Reserve. Banks and brokerages worldwide have been forced to book more than $500 billion of writedowns and credit losses since the crisis began, and have cut more than 110,000 jobs.
Lehman, which employs about 26,000, is planning to cut about 1,000 jobs this month, people familiar with the matter said on Aug. 28. The firm has already shrunk its payroll by about 6,400, or 22 percent, in the past 12 months.
``Lehman still has `lifelines' to reach for in order to avert the very scenario that brought Bear Stearns down,'' said Isabel Schauerte, an analyst at research firm Celent. ``First and foremost among these is the sale of its asset management unit.''
U.S. regulators are likely pressing Fuld, 62, to make a deal to prevent the collapse of his firm, Egan said. Federal Reserve spokeswoman Michele Smith declined to comment. The Treasury is ``in regular contact with market participants,'' spokeswoman Jennifer Zuccarelli said. The Securities and Exchange Commission is also monitoring, an SEC spokesman said.
`Willing Counterparty'
``The U.S. government cannot let Lehman fail because the systemic ripples would be too big,'' said James Hyde, a banking analyst at London-based European Credit Management Ltd., which oversees $27 billion for clients and doesn't own Lehman debt.
Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch, the three biggest U.S. securities firms, said yesterday after the close of regular trading in New York that they weren't backing away from their smaller rival.
``Goldman Sachs is a willing counterparty to Lehman Brothers across all our businesses,'' said Michael DuVally, a spokesman for Goldman. Spokespeople for Morgan Stanley and Merrill said their firms continue to trade with Lehman.
Citigroup Inc., the biggest U.S. bank by assets, UBS AG and Credit Suisse Group AG, the two largest Swiss banks, and BlackRock Inc., the biggest publicly traded U.S. fund manager, said they too continue to do business as usual with the firm.
Pressure `Needed'
Lehman has about $65 billion in mortgage-related assets that are losing value with the collapse of the real-estate market. Most of the portfolio, about $40 billion, is tied to commercial real estate holdings, which Lehman may spin off into a new company dubbed ``Spinco,'' people familiar with the matter said before the firm's statement yesterday.
Fuld, who was paid about $40 million last year when the firm posted record earnings, has resisted selling assets at fire-sale prices because he's focused on the size and global reach of his firm, said Richard Bove, an analyst at Ladenburg Thalmann & Co.
Lehman is the worst performer on the 11-company Amex Securities Broker/Dealer Index this year, and yesterday's share decline may force Fuld's hand, Bove said.
``Pressure needed to be brought in, and the stock price did that,'' Bove said. ``If he doesn't move immediately, the decision is going to move beyond him to the government.''
S&P Outlook
Standard & Poor's said yesterday it may lower its A1 long- term rating on Lehman because the ``precipitous decline'' in the share price creates uncertainty about the firm's ability to raise additional capital. S&P said Lehman's liquidity is ``sound,'' noting the firm has the ability to borrow from the Fed through a lending facility the central bank put in place for brokerages after the demise of Bear Stearns.
Lehman's second-quarter loss of $2.8 billion was its first as a publicly traded company, prompting Fuld and President Bart McDade to say they will forgo bonuses for the year. Analysts surveyed by Bloomberg expect the firm to report a $2.2 billion third-quarter loss.
Founded in 1850 by three Jewish immigrants from Germany, Lehman has managed to avert previous potential disasters and is now among the handful of U.S. financial firms that have endured for more than a century.
Lehman has been on the verge of collapse at least four times: in 1929, when the stock market crashed; in 1973, when the firm lost $6.7 million betting on interest rates; in 1984, when internal dissension led to a takeover by American Express Co.; and in 1994, when newly independent Lehman faced a capital shortage.
Fuld started working at Lehman in 1969 after getting his bachelor's degree from University of Colorado. He rose through the ranks to become head of trading by the time the firm was sold to American Express, and, after a decade, he convinced the credit-card firm to spin Lehman off as a separate public company. He has been CEO since, and he remains one of the firm's largest individual investors, with about 3.4 million shares, according to regulatory filings.
KDB:No comment on reports of Lehman talk breakdown
State-owned Korea Development Bank (KDB) declined to comment Wednesday on media reports that it had ended talks with Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) on a possible investment in the troubled U.S. lender.
The Maeil Business Newspaper reported in its Wednesday edition that the talks had ended, quoting a "high ranking government official."
"Given the domestic financial environment, the circumstances around KDB (and) the price of the stake, we can say that talks between KDB and Lehman are unlikely to succeed and that they have collapsed," the unnamed official was quoted as saying.
KDB [KDB.UL] spokesman Sung Joo-young declined to comment on the reports.
Last week Sung confirmed KDB was in talks with the subprime-hit U.S. bank on a 25 percent stake that could cost KDB up to $5.3 billion, according to reports [ID:nSP115462].
Other reports on Tuesday quoted Jun Kwang-woo, the chairman of the Financial Services Commission (FSC), as also saying the talks between KDB and Lehman had ended, but they were dismissed by the regulator.
"Our chairman has never said such things," FSC spokesman Yoo Jae-hoon told Reuters.
Lehman shares sank 45 percent on Tuesday on growing concern the fourth-largest Wall Street investment bank would be unable to raise sufficient capital to survive the global credit crisis.
The stock closed down $6.36 at $7.79 on the New York Stock Exchange, touching its lowest level since October 1998. The slide wiped out $4.4 billion in market value and prompted a broad decline in major U.S. stock indexes.
