Lehman Brothers shares lost about 40 percent on Thursday as Wall Street questioned whether the investment bank will survive because of its failure to sell assets to cover losses from toxic real estate investments.
In early trade, the stock was recently down $2.92, or 40 percent, at $4.32 as analysts voiced doubts about the bank's survival plan, laid out on Wednesday by Chief Executive Dick Fuld.
The shares have lost about 76 percent since Monday and are down 94 percent from their 52-week high of $67.73.
Other financial stocks have fallen sharply in the past week and continued to struggle on Thursday morning. Investment firm Merrill Lynch shares fell 14 percent to $20.00, insurer AIG was down 9.5 percent at $15.84 and Washington Mutual fell 14 percent to $2.00.
But Lehman -- founded in 1850 by three German immigrants who traded cotton -- garnered the most attention on Thursday.
"As much as they try to calm people down or calm investors down, investors don't have yet the answers they need," said Rose Grant, managing director of Eastern Investment Advisors in Boston. "There's a complete lack of faith, lack of confidence, and lack of trust."
Lehman announced a record quarterly loss of $3.9 billion on Wednesday, and said it would spin off distressed assets and sell a stake in its asset management business.
On Thursday, a string of analysts from banks including JPMorgan, Wachovia, Goldman Sachs and Citigroup widened loss estimates and cut price targets for Lehman Brothers.
We thought getting news out of Lehman was going to clear the dark cloud but it really doesn't. It just leaves us with a company that's limping along, that may or may not make it," said Arthur Hogan, chief market analyst at Jefferies & Co in Boston.
The company has written down billions of dollars of assets during the last year, largely holdings of complex mortgage-backed securities. And over the last several months, the bank has been battling rumors of defecting clients and talk of a takeover at a fire sale price.
"It's unfortunate that we're in the kind of position now where events can take over. The stock is telling us that Dick Fuld is running out of options," said Michael Holland, founder, Holland & Co, which oversees more than $4 billion of investments. "Unfortunately for Fuld, who has been very adamant about keeping Lehman independent, he has to find a partner now, someone to acquire them."
Lehman's survival may hinge on the sale of a 55 percent stake in its asset management business, Neuberger Berman. But not everyone is confident a deal will be consummated.
"We are not even sure that the auction process for 55 percent of their asset management group is going to work because the people that win the auction need to find the money to buy it," Hogan said.
The Lehman worries were not just affecting the stock. Its credit protection costs soared to a record and some of its bonds traded near distressed levels.
Lehman bond prices fell, with bonds offering yields of 10 percent or more, an indication traders now view the debt as high-yield or even distressed.
Five-year credit default swaps traded at 768 basis points on Thursday, or $768,000 a year to protect $10 million of debt, widening 188 basis points from Wednesday's close, according to CMA DataVision.
Thursday, September 11, 2008
Fitch sees oil prices in the range of $50-$100 a barrel
Global rating agency Fitch on Monday said, it expects oil prices to remain in the range of $50 to $100 per barrel, despite a fall in prices in the past few weeks. Companies, whose margins are under threat from high crude oil and gas prices need to be prepared for oil prices to remain in the range of $50-100 per barrel, Fitch said in a report.
Crude oil contract for October closed at around $109 a barrel on Friday from its all-time high of $147 a barrel. On Monday, US light crude fell by $1 to $105.23 a barrel, reversing gains of nearly $4 a barrel, as the dollar rose to its highest level against the euro since October.
According to Fitch, oil prices would continue to decline, particularly as the global economy slows. However, it does not anticipate that price levels seen in 2004 and prior, are likely to recur.
The report also noted that the oil and gas price environment over the last 18 to 24 months have generally benefited the oil and gas firms. Also, unprecedented high real wholesale prices has mostly led to a significant increase in cash flows and margins.
However, some firms without significant upstream exploration and production assets have conversely faced a significant margin squeeze. The financial performance of companies like Indian Oil Corporation and Sinopec of China has suffered significantly over the last two years.
This is because governments wanting to control inflation and maintain economic growth momentum have not allowed the companies to fully pass through the higher costs of crude oil to customers. Goldman Sachs analyst Arjun N Murti predicted last month that crude prices were heading towards a level of $150-200 a barrel in the next six months to two years.
While reasserting his view that crude oil was likely to remain strong in the near future, Mr Murti said in an interview with the American stock market weekly Barron’s, Goldman Sachs’ long-term forecast for 20 years was that the price could fall back to $75 a barrel.
“We have always assumed that at some point you get a sustained drop in demand. Our long-term oil forecast looking out 20 years is to fall back to $75 a barrel or some lower number,” Barron’s quoted Mr Murti as saying.
In a Goldman Sachs research note last month, Mr Murti had written that the possibility of oil price rising to $150-
200 per barrel level was increasingly likely over the next 6 to 24 months
Crude oil contract for October closed at around $109 a barrel on Friday from its all-time high of $147 a barrel. On Monday, US light crude fell by $1 to $105.23 a barrel, reversing gains of nearly $4 a barrel, as the dollar rose to its highest level against the euro since October.
According to Fitch, oil prices would continue to decline, particularly as the global economy slows. However, it does not anticipate that price levels seen in 2004 and prior, are likely to recur.
The report also noted that the oil and gas price environment over the last 18 to 24 months have generally benefited the oil and gas firms. Also, unprecedented high real wholesale prices has mostly led to a significant increase in cash flows and margins.
However, some firms without significant upstream exploration and production assets have conversely faced a significant margin squeeze. The financial performance of companies like Indian Oil Corporation and Sinopec of China has suffered significantly over the last two years.
This is because governments wanting to control inflation and maintain economic growth momentum have not allowed the companies to fully pass through the higher costs of crude oil to customers. Goldman Sachs analyst Arjun N Murti predicted last month that crude prices were heading towards a level of $150-200 a barrel in the next six months to two years.
While reasserting his view that crude oil was likely to remain strong in the near future, Mr Murti said in an interview with the American stock market weekly Barron’s, Goldman Sachs’ long-term forecast for 20 years was that the price could fall back to $75 a barrel.
“We have always assumed that at some point you get a sustained drop in demand. Our long-term oil forecast looking out 20 years is to fall back to $75 a barrel or some lower number,” Barron’s quoted Mr Murti as saying.
In a Goldman Sachs research note last month, Mr Murti had written that the possibility of oil price rising to $150-
200 per barrel level was increasingly likely over the next 6 to 24 months
Gujarat PSEs lose Rs 1,100 cr in a day
Listed PSE companies from Gujarat took a huge beating on the bourses as investors sold heavily in these stocks, following the state government’s logic-defying ‘request’ to these entities to set aside 30 per cent of their profit before tax (PBT) for social causes.
On a single day, the market capitalisation of Gujarat Mineral Development Corp (GMDC), Gujarat Alkalies and Chemicals (GACL), Gujarat State Fertlizers and Chemicals (GSFC), Gujarat Narmada Valley Fertilizers Corp (GNFC), Gujarat Industrial Power Corp (GIPCL) and Gujarat State Petronet Limited (GSPL) fell by Rs 1,097 crores.
More importantly, the value of government’s holding in these companies was shaved off by Rs 590 crore on a single day. Shares of GMDC, which has already declared in its annual report it would contribute nearly Rs 123 crore for social causes, fell like a rock. Only GSPL could hold on to slender gains on a day the Sensex fell by around one per cent.
Analysts have already criticised government’s move saying it would erode the equity of these companies, as was evident to everyone on Thursday. Instead, they have suggested that these companies pay higher dividend to shareholders and the government, being the majority shareholder, use that amount for social causes.
TOI learnt that managing directors of all these six listed companies had together made a representation to the state government against the move, even as they prepared to call annual general meetings (AGM) to seek consent of shareholders to comply with the government’s wishes. At least three PSEs — GMDC, GSFC and GIPCL — have their AGMs scheduled within this month. The decision to transfer 30 per cent of profit before tax was taken earlier this year amid strong opposition from IAS officials heading these PSEs.
The most vocal among critics of the move was GNFC CMD Sudha Anchalia, who had clearly told the government that such a move, aimed at ensuring corporate social responsibility, would not only bring down the rating of the companies but also affect their expansion plans because of reduced liquidity.
On a single day, the market capitalisation of Gujarat Mineral Development Corp (GMDC), Gujarat Alkalies and Chemicals (GACL), Gujarat State Fertlizers and Chemicals (GSFC), Gujarat Narmada Valley Fertilizers Corp (GNFC), Gujarat Industrial Power Corp (GIPCL) and Gujarat State Petronet Limited (GSPL) fell by Rs 1,097 crores.
More importantly, the value of government’s holding in these companies was shaved off by Rs 590 crore on a single day. Shares of GMDC, which has already declared in its annual report it would contribute nearly Rs 123 crore for social causes, fell like a rock. Only GSPL could hold on to slender gains on a day the Sensex fell by around one per cent.
Analysts have already criticised government’s move saying it would erode the equity of these companies, as was evident to everyone on Thursday. Instead, they have suggested that these companies pay higher dividend to shareholders and the government, being the majority shareholder, use that amount for social causes.
TOI learnt that managing directors of all these six listed companies had together made a representation to the state government against the move, even as they prepared to call annual general meetings (AGM) to seek consent of shareholders to comply with the government’s wishes. At least three PSEs — GMDC, GSFC and GIPCL — have their AGMs scheduled within this month. The decision to transfer 30 per cent of profit before tax was taken earlier this year amid strong opposition from IAS officials heading these PSEs.
The most vocal among critics of the move was GNFC CMD Sudha Anchalia, who had clearly told the government that such a move, aimed at ensuring corporate social responsibility, would not only bring down the rating of the companies but also affect their expansion plans because of reduced liquidity.
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