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In yesterday’s must-read article, the WSJ has Lehman Brothers (LEH) dead to rights:

In the weeks before it collapsed, Lehman Brothers Holdings Inc. went to great lengths to conceal how fast it was careening toward the financial precipice.

The ailing securities firm quietly tapped the European Central Bank and the Federal Reserve as financial lifelines. On Sept. 10, one day after Lehman executives calculated the firm needed at least $3 billion in fresh capital, the firm assured investors on a conference call it needed no new capital at all. Lehman said its massive real-estate portfolio was valued properly, but Wall Street executives who have seen it say it was overvalued by more than $10 billion. As hedge-fund clients began yanking their money from Lehman, the firm assured them it was on solid financial footing.

On Sept. 11, J.P. Morgan Chase & Co. effectively ended Lehman's campaign to appear strong. In its capacity as a middleman between Lehman and its clients, J.P. Morgan knew more about Lehman's predicament than most outsiders, and it didn't like what it saw. J.P. Morgan demanded from Lehman $5 billion in additional collateral -- easy-to-sell securities to cover lending positions that J.P. Morgan's clients had with Lehman -- repeating an unmet request from a week earlier, people familiar with the situation say.

It was a knockout blow. That $5 billion collateral call, coupled with a huge outflow of money from Lehman's hedge-fund clients, so weakened the 158-year-old Wall Street firm that it sought Chapter 11 bankruptcy protection four days later.

The worst thing a bank can do is have people lose confidence in it. At one point, Lehman said its Level 3 assets were up 9% while the stock market was down 10%. When people called fouled, the bank got mad at the messengers. That’s a sign right there that things aren’t going well.

Ultimately, a bank’s product is trust. That’s what they sell. So a bank in trouble has to exude confidence even though it may be crumbling internally. If you look weak, clients will abandon you and you’ll become weak.

Source: Lehman's Troublesome Last Days