Big Al45

Lehman Brothers Take-over: Implications for Financials

The so called "peer group" does not provide a meaningful comparison . Lehman has very little in common with monoline insurers, Business Development Companies, and regional banks that don't have significant off balance sheet exposure. Their asset mix (and risk exposure) is considerably different than that of investment banks like Lehman.

The comparators should be limited to other investment banks and the large money center banks (such as BAC, RY, DB, TD, UBS.)

Still, the Crooks Be Winnin'

To " Nic In NC"

The book is being "rehashed" because its the most visible and best explained example of the Bush Administration's incompetence in regulating the stock market. These idealogues believe in the "invisible hand of the market" so much that they can't tell when the hand is giving "retail" investors the middle finger.

Still, the Crooks Be Winnin'

A well run BDC could actually be a better investment than most banks. Their leverage is smaller than banks and their loans are often better secured than the average real estate construction loan.
As one of the posters noted, ALD has been in business 50 years, which is a long time for a true Ponzi scheme.

Nevertheless, Einhorn is right about the current management. (i.e. Walton.) ALD made a lot of poor loans and didn't accurately report their unrealized losses until recently, and managment skimmed a lot of Allied's profits for themselves.

ALD does have some strengths - namely the deal with General Electric - and aren't likely to go bankrupt. But I believe that they will have to significantly reduce their dividend payout after the first quarter of next year and the stock price will decline dramatically.

If you want to see what happens when a BDC loses its ability to make dividend payments, take a look at MCGC. If you have to own ALD, make sure you get out before next April.

Still, the Crooks Be Winnin'

I don't know how anyone can say Allied had a good quarter. They only earned 25.7 cents per share (net investment income less realized losses) yet still paid dividends of 65 cents per share. For the mathematically challenged, this means that their earnings only covered 40% of their dividend.

So, where did ALD get the cash to pay the dividend. They claim it was from income earned during 2007. But the truth is - they probably got it from the sale of new stock shares during 2008.

Also, recognize that the 25.7 cents per share in earnings doesn't take into account the unrealized depreciation (i.e losses in current portfolio value) of 83 cents per share during the quarter. Since their portfolio is supposedly kept to maturity, these losses will not be completely realized. But, even if only a third of the losses are realized (a conservative estimate), ALD actually lost 2 cents per share during the quarter.

But they still paid 65 cents in "dividends."