Thursday, June 12, 2008

News! on the March!

Obviously the Lehman story is dominating headlines. Lehman CDS has been all over the board this morning. I've seen it quoted as wide as +310 immediately after the news, most recently saw +270. For color, Lehman CDS hit a recent low of +135 on May 2 and was as wide as +450 on March 14. Those are closing levels not intra-day. Its been trading between 250 and 300 for the last several days.

The lack of contagion trading, at least at the open, is facinating. You've got Treasuries down, dollar stronger, swaps tighter, stocks higher. On one hand, you could say lower oil and stonger retail sales matters more than Lehman. You could also argue that Lehman's survival is all that matters to the broader market. Whether or not Lehman can grow their stock price is of no moment.

Still, I'm skeptical and would rather fade the rally.

New bond issue to watch is SLM Corp. 8.45% 2018. Sold initially at a dollar price of $98.03 or a spread of 465 over the 10 year. Sallie has been trading on dollar price for a while now, but not surprisingly has traded much stronger after Congress agreed to buy student loans from originators. Anyway, SLM was one of the poster children from the liquidity crisis, and this new issue may jump start activity in the name. (I'm long SLM, full disclosure). Anyway, the new issue was bid at $98.5 early this morning. Haven't seen any actual trades yet.


Anonymous said...

So BBC is reporting that the LEH executives quit, while the US news media is saying they were "relieved of their responsibilities" (which sounds like they were fired?)

To some extent, this is just symantics, but in another sense it isn't.

When Joe Average screws up, he gets fired. No golden handshake, no concerns about keeping his dignity as he as escorted out the door by security.

When senior management screws up, they get paid millions?

A lot of this mess is a confidence game, and its hard to see how confidence gets restored by paying senior people millions to screw up

A.J. said...

Is there a way for us readers to get the CDS data that you are referring to in your post.

CityUnslicker said...

Lehmann's will be unlikely to go execpt to private equity - who could fund the takeover?

Anonymous said...

love your stuff AI...wondered if you'd seen MBIA opco trading wider than holdco today for the first time...they've been converging for a couple of weeks and today popped across...very ugly for the insurance co...

Accrued Interest said...

On MBIA: Yeah I've been trying hard to find people know can intelligently discuss the opco/holdco trade, but it seems that no one really understands the run-off story.

AJ: CDS info is hard to find. Look at this post:

That's the best I can give you.

City: LEH is a little different from Bear Stearns in that they really don't need that "unquestioned" balance sheet, just more capital. So Blackstone or Blackrock could legitimately buy them. It was rumored that JC Flowers was interested in Bear but at the time, that wouldn't have been acceptable.

PNL4LYFE said...

Anon: Certainly the CEO's who piloted their firms to destruction don't deserve the huge severance packages they get (although most of them are contractual). But in this case, you have a CFO who has been there for less than a year who takes the fall for damage that was done before she could possibly have been responisible for it.

The criticism that LEH was not forthcoming about the magnitude of the problems is not quite as unfair, but what do people expect? Should she have gone on CNBC saying "We're marked to high on most of our crap, we're going to have a huge writedown and need to raise lots of capital"? In a business where counterparty reputation is essential, that kind of "honesty" is not going to happen.

Anonymous said...


I think she had been with LEH for 4-5 years (you may be right about being CFO for only 1 of them). The other guy fired/quit was at LEH for decades.

At any rate, if it wasn't "her fault" (and she was just taking the fall for Fuld) -- then my criticism would better apply toward Fuld.

But the confidence problem still remains (life isn't fair, so we'll ignore that part)... You can't have any confidence in a meritocracy where senior people get paid even when they screw up royally.

And as for the "honesty" ... well the story was going to come out either way. She didn't avoid anything. In the end, everyone "learned" LEH has big problems (which we basically already knew) -- the only thing that she changed was to discredit herself

Anonymous said...

Does anyone on this blog know of a source to get indicative swaption volatilities if you don't have access to a Bloomberg? end of day, indicative is plenty adequate -- I just want to follow major trends on callable debt

The Fed offers a lot of this sort of info -- but unfortunately not swaption vols.

Any ideas?