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BloombergThe financial wreckage of 2008 has left no part of our country untouched. It exposed the bankruptcy of business models employed by mortgage companies, investment banks, and rating agencies as well as the flaws of innovations such as structured finance and credit default swaps. It also highlighted regulatory gaps and failures at almost every level of oversight.
In 2008 Bear Stearns Cos. and Lehman Brothers Holdings Inc. imploded, Fannie Mae and Freddie Mac were placed into conservatorship, mainstay Wall Street firms like Merrill Lynch & Co. Inc. were forced to merge with other companies, and giant institutions such as American International Group Inc. clung to existence on federal life support.
More painfully, too many Americans face the twin perils of home foreclosure and job loss as frozen credit markets signal an increasingly deep economic slowdown.
West Palm Beach (HedgeCo.net) - Due to their recent share decrease, Lehman Brothers Holdings Inc. has agreed to sell majority interest to asset manager Neuberger Berman. The transaction will create a new, independent investment management company to be called Neuberger Investment Management, managing approximately $160 billion of assets as of 30 November 2008.
Lehman Brothers Private Equity Partners Limited (LBPE) and certain of its affiliates will be a part of this transaction. The sale is subject to final Bankruptcy Court approval, and closing is expected in the first quarter of 2009.
LBPE’s Board of Directors believes this transaction will significantly benefit the Company by providing the management team of the Investment Manager a strong platform from which to continue managing LBPE’s high quality private equity portfolio and support the long term success of the Company.
LBPE will also host a conference call later this week for investors and analysts to discuss the Investment Manager update and the Company’s performance. An updated investor presentation will be published on the Company’s Web site prior to the conference call on 12 December 2008.
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The Daily Deal - Lehman Brothers Holdings may have gone bankrupt eight weeks ago, but the filing continues to reverberate throughout the financial world and even in some unexpected places like the National Football League’s New York Giants. The latest to join the ranks of the exposed are hedge funds. All those 140,000 failed or reconciled credit derivative swaps trades that PricewaterhouseCoopers is involved in identifying could hit the hedge funds and numerous other Lehman clients next month.
According to the Financial Times, four unnamed U.S. hedge funds are likely to close in mid-December because they cannot access holdings held at the London arm of Lehman Brothers. All of the shares and loans cannot be accessed so that PwC can unravel those CDS’s.
Bloomberg - Millennium Partners LP, the $13.5 billion hedge-fund firm run by Israel Englander, plans to return $1 billion to investors who asked for their cash back by year-end, according to two people familiar with the matter.
The redemptions, equal to 7.4 percent of client assets, would have been higher except the New York-based firm limits redemptions in any quarter, said the people, who asked not to be identified because the information is private. A spokeswoman for Millennium declined to comment.
Millennium lost about 3 percent this year through October, the people said, compared with hedge funds’ average decline of 16 percent, according to data compiled by Hedge Fund Research Inc. Two percentage points of Millennium’s loss were caused by assets frozen in the September bankruptcy of Lehman Brothers Holdings Inc., one of the people said.
Forbes - Major Wall Street firms placed large bets against Morgan Stanley using credit-default swaps, two days after Lehman Brothers Holdings Inc sought bankruptcy protection, the Wall Street Journal said, citing trading records.
The firms included Merrill Lynch & Co, Citigroup Inc, Deutsche Bank AG and UBS AG, according to the paper.
The paper said that a close examination of the trading revealed that the swaps played a critical role in magnifying bearish sentiment about Morgan Stanley.
CNBC - The head of Morgan Stanley’s prime brokerage arm in Asia, Kurt Baker, has left the firm amid the slump in Asia’s hedge fund industry, a source with direct knowledge of the situation said on Wednesday. A spokesman for the U.S. bank declined to comment. But the source confirmed Baker was no longer coming into the office.
His departure comes after Morgan Stanley last week announced a further round of job cuts, including 10 percent of staff in its institutional securities unit, its main business, and 9 percent in asset management. The cuts are in addition to roughly 4,800 jobs eliminated since the middle of 2007 by what was once Wall Street’s second-largest investment bank.More than 100,000 financial services jobs have been eliminated worldwide over that time.
Morgan Co-President James Gorman said at the time the firm plans to "reshape" operations including prime brokerage, which lends securities and provides other services to hedge funds. Morgan Stanley and Goldman Sachs Group Inc were widely regarded as the two leading prime brokerages in Asia in recent years. But industry sources said hedge fund clients moved assets from the firms in the wake of Lehman Brothers Holdings Inc’s bankruptcy, which raised questions about the stability of investment banks.
Bloomberg - Hedge funds run by Jeffrey Gendell and John Burbank III posted their worst monthly losses in October. Peter Thiel gave back gains made earlier in the year. Nobel-prize winner Myron Scholes froze his biggest fund.
The managers, like many in the $1.7 trillion hedge-fund industry, were caught in a downdraft of market declines, client redemptions, demands from lenders for more collateral and forced asset sales that accelerated after Lehman Brothers Holdings Inc. collapsed in mid-September.
Funds fell by an average 5.4 percent last month, pushing the year-to-date drop to 15.5 percent, according to the HFRI Fund Weighted Composite Index compiled by Chicago-based Hedge Fund Research Inc. Investors have been handed losses for five straight months, the longest streak since HFRI started the index in 1990.
“October was the perfect storm for liquidity drying up, especially in the credit markets,” said Gary Vaughan-Smith, co- founder of London-based SilverStreet Capital LLP, which has $600 million invested in hedge funds for its clients. “We are through the worst and the turmoil should be gone by the end of November.”
Washington Observer Reporter - Wall Street’s initial enthusiasm about a $586 billion Chinese stimulus package fizzled Monday, as investors succumbed to anxieties about how U.S. companies will survive a severe pullback in spending.
Stocks got a short-lived boost from China’s plans to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co. and Caterpillar Inc.
But Wall Street’s optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc. and government takeover of the troubled insurance giant American International Group. Market participants realized that while China’s stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.
Bloomberg - Mizuho Financial Group Inc., Japan’s second-largest bank by revenue, will start electronic trading in Asia after hiring a team of 16 former Lehman Brothers Holdings Inc. employees, two executives familiar with the plan said.
The team, led by Anthony Brooker, the former head of electronic trading sales for Lehman in Asia, will target hedge funds and institutional investors with electronic products and systems for equities trading, the executives said. They declined to be identified as the plan isn’t public.
Mizuho, which cut its full-year profit forecast 55 percent on Oct. 31 because of rising bad loans and investment losses, is building its equity trading business in Asia to challenge Nomura Holdings Inc. Brooker was among hundreds of Lehman employees who opted to join competitors rather than staying with Nomura after the firm agreed to buy Lehman operations in Asia, the Middle East and Europe. Nomura is taking over about 8,000 Lehman workers following the Wall Street firm’s collapse in September.
Reuters - Autonomy Capital Research LLP, a $1.7 billion hedge-fund firm run by former Lehman Brothers Holdings Inc trader Robert Gibbins, halted withdrawals from its flagship fund after losses this year, Bloomberg reported on Tuesday.
The $1.2 billion Autonomy Capital Fund slumped about 40 percent this year through October, according to a Nov. 3 letter sent to investors, Bloomberg reported.
Bloomberg - Some hedge fund managers provided inaccurate information to investors in newsletters and monthly fact sheets, Hong Kong’s Securities and Futures Commission said.
In one instance, the hedge fund manager excluded the fund’s largest stock holding from its top five investments because of “oversight,” the regulator said in a statement issued late yesterday to all licensed hedge fund companies in the city. In other cases, the managers misstated the funds’ debt ratios and net asset values “to a limited extent.”
The findings were results of a recent SFC inspection of eight small locally established hedge fund managers overseeing $5 million to $800 million and employing three to 30 people. The regulator didn’t identify the managers involved. Ernest Kong, a SFC spokesman, declined to provide further comments.
Regulators worldwide have been increasing oversight over the $1.7 trillion hedge fund industry amid a crisis that has laden the world’s largest banks and securities firms with more than $670 billion of losses and led to the failure of Lehman Brothers Holdings Inc. Hedge funds are bracing for the industry’s worst year in almost 20 years and trying to stem investor withdrawals.
Bloomberg - Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.