Fallout: The Financial Crisis

Is Lehman’s very survival in jeopardy?

Nancy Marshall-Genzer Aug 19, 2008
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Fallout: The Financial Crisis

Is Lehman’s very survival in jeopardy?

Nancy Marshall-Genzer Aug 19, 2008
HTML EMBED:
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TEXT OF STORY

Kai Ryssdal: You know, Wall Street is a pretty insular place. One where everybody knows everybody else’s business, and they keep track of how everybody’s business is doing, too. According to JP Morgan, Lehman Brothers ain’t doing too hot. Morgan’s analysts said today they figure Lehman’s going have to write off another $4 billion worth of subprime debt gone bad. If that’s not enough to make you wonder how long the subprime mess is gonna keep on playing out, there are reports Lehman’s shopping around some of its most lucrative operations as a way to raise cash. What it all adds up to is speculation that yet another Wall Street bank is on the verge of going under. Marketplace’s Nancy Marshall Genzer reports.


Nancy Marshall Genzer: Lehman Brothers is holding a giant fire sale. The investment bank’s critics say it won’t get much now for stinky subprime mortgages. They’re trading at deep discounts. Walter Gerasimowicz is CEO of Meditron Asset Management.

Walter Gerasimowicz: They took on far too much risk. They lost sight of their risk management from years ago.

Lehman’s not commenting on reports that it might sell part of its asset management division, which handles rich people’s money. Gerasimowicz says, eventually, Lehman will be taken over by a stronger company. He compares Lehman to a wounded patient who’s fading fast.

Gerasimowicz: The bleeding needs to be stemmed and they need a transfusion from a larger partner, because they will not be able to survive financially on their own.

But there’s another view. [song “I Will Survive” plays in the background] Some analysts say Lehman will soon be groovin’ to a different tune. Scott Sprinzen follows Lehman for Standard & Poor’s.

Scott Sprinzen: We don’t feel that they face any insurmountable challenges or crisis.

Sprinzen says Lehman has plenty of cash on hand. The problem, he says: market psychology.

Sprinzen: They have to react to the market perceptions, even if they’re not well grounded in fundamentals.

Sprinzen says Lehman is reacting by getting rid of those problem mortgages. But Meditron’s Gerasimowicz says investors are worried that Lehman could be a lost cause, and that negative psychology could be enough to tip the investment bank over the edge.

I’m Nancy Marshall Genzer for Marketplace.

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