Credit-Default Risk (CDS) Soars After Lehman Brothers Files for Bankruptcy

September 15, 2008 by · Leave a Comment
Filed under: Industry News 

Much uncertainty on Wall Street today. According to Bloomberg, Lehman was a top 10 dealer in CDS or credit-default swaps. First fallout with a major market maker going under is the amount counter-parties are demanding for debt insurance has gone up 50% overnight in many cases.

Bill Gross of Pimco made this comment ““The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,” “It induces a tremendous amount of volatility and uncertainty.”” In this article they stated if a company insured $2 trillion in debt and went under it would induce 36-47 billion dollars in losses. This is not good and we might finally be over the edge with no way back.

CDS Article:

Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.

Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.

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Derivatives market trades on Sunday to cut Lehman Brothers counter-party risk

September 14, 2008 by · Leave a Comment
Filed under: Economic News 

Unprecedented, this must be a signal that things are worse than most people think.  Opening a Sunday session for Smart money to unwind  their derivative position.  This week should be a rollercoaster ride.

News Release:

Major players in the $455 trillion global derivatives market rushed Sunday to scale back exposure to a potential bankruptcy filing by investment bank Lehman Brothers in a rare emergency trading session. Trading took place as U.S. regulators and bankers were making last-ditch efforts to prevent toxic assets from ailing Lehman Brothers spilling into global markets and rupturing investor faith in the international financial system.

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Lehman Brothers Said to Prepare Bankruptcy as Buyers Withdraw

September 14, 2008 by · Leave a Comment
Filed under: Industry News 

Tomorrow morning (Monday) will be very telling on is to come. This announcement could have major implications going forward. The first thing that comes to mind is what exposure is our their for CDS against Lehman debt or how much of this paper are they the counter-party and if there is major exposure on either or both, what position does that put in companies in when they file bankruptcy protection?

My gut feeling is this is going to send shock-waves throughout the markets. Gold has already jumped 2 1/2% in the Asian market at the time of this writing on a Sunday night.

Release:

Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.

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Lehman Brothers shares dive after Korean bank talks end

September 9, 2008 by · Leave a Comment
Filed under: Industry News 

Another nail in the coffin for Lehman Brothers, it will be a sad day to see another great independent investment bank go down in flames or gobbled up by the J.P. Morgan Trust.  The stock dropped 45% on the news with over 90% of the value lost this year.  I will note that the report of the talks is be disputed but the truth will be out by end of day.

I wonder if Lehman is too big to fail as well?  It must depend on their counter-party exposure to credit-default swaps or CDS.  With the BIS reporting on the $1.44 Quadrillion dollars of this toxic stuff floating around, bankruptcy is one of the biggest risk during this trying time for the financial sector.

Release:

Lehman Brothers Holdings Inc. shares plunged to a new low Tuesday on a report that talks with state-owned Korea Development Bank ended without any deal for a badly needed capital injection.

The nation’s fourth-largest investment bank had hoped to secure a deal with the Korean fund before announcing third-quarter earnings on Sept. 18. Lehman is facing billions of dollars in losses from wrong-way bets on mortgage securities, and had hoped another round of capital raising would encourage investors.

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Lehman Brothers Is Candidate for Hostile Takeover?

August 21, 2008 by · Leave a Comment
Filed under: Industry News 

With the weak position most banks are in and after IndyMac being seized and Bear Stearns being taken over, this doesn’t surprise me. We should look to see more consolidation in the industry. Bloomberg has reported on speculation that Lehman Brothers could be next on the takeover list.

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