Sunday, September 14, 2008

If Lehman Liquidates, Wall Street Gets Set to Make a Killing

WSJ's Evan Newmark tells it the way it is:.

Goldman has billions of dollars dedicated to distressed debt situations just like this. It may very well run counter to the interests of Goldman investors and shareholders to subsidize any deal for Lehman.

This is where the Lehman death drama turns into farce. It isn’t a shortage of outside capital that is driving Lehman into bankruptcy. It is the bid-ask spread on its bad assets, or the difference between a buyer’s and seller’s views on price.

Sure, the $53 billion in assets are illiquid, but at some price there is a buyer. Are the assets worth 10 cents on the dollar or 50 cents on the dollar? Dick Fuld was afraid to find out.

Still, there are tens of billions of dollars of Wall Street capital happy to bid for the assets. Goldman, private-equity firms like J.C. Flowers, Kohlberg Kravis Roberts, Carlyle Group, TPG or Blackstone Group, hedge funds, distressed-debt funds and sovereign-wealth funds all have capital. They are just waiting for the clearing prices on Lehman’s assets to get attractive...

but what about the collective well-being of the markets? What about a feared-for financial apocalypse brought about by the unwinding of Lehman’s $600 billion balance sheet?

It may not be pretty, but apparently Wall Street has decided that the price won’t be too steep. Or else, it would have put up the money.

If a Chapter 7 filing is made, Wall Street will move on. In offices and conference rooms not far from the New York Fed, bankers probably are already gathering to prepare for bids on assets they hope to pick up on the cheap in any potential Lehman liquidation.

In the coming weeks, Wall Street’s vultures will pick over Lehman’s still-warm body–and wait for one or two more victims to come their way.

Bottom line: Goldman Sachs, the Carlyle Group and friends come out on top again, and, for Goldman, another competitor bites the dust.

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