Wall street has wild animals, everyone is looking for fresh flesh, funds flow, in last two weeks – I have seen two of the cases when these wild cats ate up three financial institutions, Freddie and Fannie fell more than 85 % in a day, then Lehman fell more than 45%. Yesterday, I was thinking about my good old college days when everything was booming like anything, the real estate prices in big cities went up 300%, I banks at wall street were making record net profits, Indian capital markets were touching new highs everyday….eventually one of the old phrases came true “Brighter the light, darker the shadows”
Yes, still the clouds of recession for the US have not departed the territory, analysts across have one same view, worst is still not over. Lehman brothers, one of the oldest Investment banks at Wall street, might have to sell off its Investment bank arm, which is however, termed among the prestigious I banks at Wall street, an year ago. They are also planning to spin off their real estate mortgage arm to reduce the losses from adjustable rate mortgage portfolio. Given all these rescue plans, Lehman is doing its best to convince people out there, that they have something left and will not collapse. However, the Indian office of Lehman might have to reduce head-count for the simple reason, there will be no business going forward, and might be after third quarter, Lehman might have to close offices in south Asia.
After Lehman what next ? Across the globe people have been speculating the future of economy in the US, everyone has its own story, my personal opinion which I mentioned sometime back, this is second leg of recession, first was Bear Stearn’s bailout by the Fed. However, the movie does not end here, still bad news is in the system, might be after looking at third quarter results we might form a more conclusive statement for the economy!
Vivek Misra
Lehman had huge exposure to Mortgage backed securities /debt / equity securities, which is however, more than 70% of their asset base. Lehman had an asset base of $700 billion, of which $500 billion is securities.
AIG and other big insurers have insured SPV {special purpose vehicals} which stands intermediate between lender and the bank which issued securities on mortgages the lender has. This made AIG also vulnerable to the risk, when prices came down in the US, they also faced the music.