Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Reuters – A hedge fund that specializes in distressed investments has filed a notice of appeal in the Lehman Brothers Holdings Inc bankruptcy case, indicating it intends to challenge the court order approving the sale of Lehman’s core U.S. business to Barclays Plc.
The fund, Bay Harbour Management, did not disclose in the filing what it plans to argue in the appeal, but in court last week it filed an objection to the sale based on concerns about an $8 billion transfer from the investment bank’s European unit to its U.S. unit just before Lehman filed for bankruptcy protection.
Bloomberg – Lehman Brothers Holdings Inc., the U.S. investment bank holding company that filed the largest bankruptcy in history, faces objections to a proposed $1.75 billion sale of its broker-dealer unit to Barclays Plc.
Hedge fund Harbinger Capital Partners asked a U.S. bankruptcy judge to block the sale unless Lehman immediately discloses cash transfers it made just prior to its bankruptcy, including an alleged $5 billion transfer of cash from Lehman’s London office. Another two hedge funds, Bay Harbour Management LC and Amber Capital, filed papers alleging $8 billion was moved.
The objections continued to roll in as a hearing to approve the sale, scheduled for 4 p.m., was delayed as hundreds of participants and onlookers overcrowded a courtroom in U.S. Bankruptcy Court in Manhattan.
Lehman “must provide adequate information, and certify its accuracy, as to what cash has moved in and out of Lehman Brothers Inc. and debtor Lehman Brothers Holdings Inc.,” Harbinger said in court documents filed today with U.S. Bankruptcy Judge James Peck.
Reuters Paris – European hedge funds have had a bad week due to the market turmoil from the bailout of AIG and the collapse of Lehman Brothers, the co-founder of French fund of hedge fund manager ERAAM said on Thursday.
Paris-based ERAAM selects European hedge funds in which to invest its clients’ money and constantly monitors the performance of these hedge funds.
"This is a bad week. The driver of the market is not valuations any more. It’s just rumours and liquidity," said Cyril Julliard.
"Some could have been short on HBOS and long on Morgan Stanley," he added, referring to the British retail bank and U.S. investment bank.
Reuters Singapore – U.S. investment bank Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company’s share price, broadcaster CNBC reported on Wednesday.
Morgan Stanley officials were not in merger talks as of late Tuesday, CNBC said, citing unnamed people close to the matter.
"But senior people at Morgan concede that further zig-zags in the company’s stock price could and possibly will force the company to change course and seek a merger partner, probably a well capitalized bank," CNBC reported on its Website.
Morgan Stanley shares closed down 10.8 percent at $28.70 on Tuesday, having fallen 46 percent so far this year.
Morgan Stanley officials in Hong Kong declined to comment on the report.
CNNMoney.com – Hedge funds were leaving the prime brokerage business of Lehman Bros. (LEH) long before Lehman filed for Chapter 11 bankruptcy Sunday, and now, business there has all but stopped, according to sources.
But in certain areas, like the statistical arbitrage and repurchase, or repo markets, Lehman was and still is a top player. What happens to the prime brokerage is a complicated question, because most of that business is located in the U.K. While Lehman included its prime brokerage as part of its bankruptcy, it is not thought to be subject to the laws of Chapter 11 since the business is in the U.K.
Lehman’s prime brokerage, which like others lends money and securities to hedge funds as well as provides administrative services from back-office help to processing trades, was a key revenue-earner for the bank as recently as earlier this year. In its first-quarter earnings report in March, Lehman had reported a 38% year-over-year revenue increase in its securities service unit, which includes prime brokerage. At that time, it said it had $194 billion in hedge fund balances.
But as the investment bank started stumbling more and more the past few months – along with the rest of the financial services industry – Lehman started losing all or part of the business of hedge fund customers afraid of the counterparty risk attached with dealing with Lehman.
Reuters UK – The bankruptcy filing of Lehman Brothers is another blow for the hedge fund industry, but at least the damage is limited from here for funds exposed the U.S. investment bank.
Even legendary fund manager George Soros, who runs around $18 billion (10 billion pounds) in assets, is likely to have been affected after raising his stake in the investment bank to 9.5 million shares in the second quarter.
A spokesman for Soros Fund Management declined to comment on the composition of their portfolio.
British activist hedge fund Algebris is also likely to have been hit by the fall in the share price of Lehman, once the fourth-largest U.S. investment bank.
The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman said, declining to give further details.
Reuters – Hedge fund firm Citadel Investment Group said on Tuesday it had hired two senior sales executives from Merrill Lynch, the investment bank that is being sold to Bank of America for $50 billion.
Chicago-based Citadel, which manages around $18 billion in assets, said in a note that Tobias Gehrke and Anita Nassar had been hired to lead Citadel’s capital development efforts in Europe, the Middle East and Northern Africa.
Nassar worked as head of central banks and sovereign wealth funds at Merrill, while Gehrke led the government institutions group for the firm’s equities and alternatives businesses. A growing number of professionals have been leaving investment banks for hedge funds, which are increasingly seen as a safer option, since the credit crisis began last summer.
Washington Post – State-controlled Korea Development Bank (KDB) proposed buying 25 percent of Lehman Brothers (LEH.N) for up to $5.3 billion, a newspaper reported, but other Korean banks rumored to be joining a KDB bid consortium denied they were involved.
Daily Chosun Ilbo also reported on Wednesday that top European bank HSBC Holdings (HSBA.L) (0005.HK), several U.S. hedge funds and an unidentified Chinese bank were among other potential buyers of Lehman, the fourth-ranked U.S. investment bank.
KDB had confirmed on Tuesday it was in talks with Lehman over a possible joint investment with other Korean banks, but declined to give details of its negotiations. On Wednesday, it said it was still unsure whether there would be a deal.
"Korea Development Bank has considered M&A deals in foreign investment banks including Lehman Brothers, and asset management companies, as part of its privatization and competitiveness efforts, but nothing has been decided yet," it said in a statement.
Reuters UK – Lehman Brothers has intensified talks with Korea Development Bank to raise as much as $6 billion (3.3 billion pounds) in a share sale that could be concluded this week, the Sunday Telegraph reported.
South Korea’s KDB KDB.L could buy up to 25 percent of the struggling U.S. investment bank, the paper said, without specifying sources. A spokesman for state-run KDB declined to comment.
A senior source at the Financial Services Commission FSC.L, told Reuters South Korean authorities would not oppose or support any deal until price details were known.
That appeared to mark a shift by the regulator, which previously said KDB should let local private banks take the lead in any international acquisitions, dashing hopes for a direct deal with Lehman.
The Ledger – Lehman Brothers, the troubled investment bank, is considering the sale of all or part of its prized money management division to private equity firms to raise billions of dollars of capital and ease the pressure caused by losses related to real estate.
The move would be the latest by a Wall Street firm forced to sell off high-end assets, following the recent sale by Merrill Lynch of its stake in Bloomberg L.P. and the sale by Citigroup last month of its large German consumer banking franchise.
Lehman sent letters last week to a number of financial companies, including private equity firms like Kohlberg, Kravis & Roberts, J. C. Flowers, the Blackstone Group, the Carlyle Group and Apollo Management, to test interest in its money management division, according to several people briefed on its contents.
The letter, a so-called memorandum of understanding, did not put a value on the division. It said that interested parties could bid for all or some of the pieces but encouraged bidders to make an offer for the whole business.
Boston Globe – Morgan Stanley and Goldman Sachs are responding to the credit crisis with a system that uses the market’s view of their own creditworthiness as a basis for lending decisions, the Financial Times reported.
Wall Street’s second-largest investment bank Morgan Stanley is essentially tying its promise to provide financing to hedge fund clients to the price of credit insurance on its own debt, it said.
If the cost of the protection rises to a certain level, that would trigger a reduction in Morgan Stanley’s commitments to hedge funds, the quoted people familiar with the situation as saying.
The message is that "if our firm is in trouble, we would rather fund ourselves than fund you (hedge funds)," the paper quoted a brokerage executive with knowledge of the arrangements as saying.
Reuters – Billionaire investor George Soros hiked his stake in Wall Street firm Lehman Brothers to 9.5 million shares as of June 30 from 10,000 shares, according to a U.S. regulatory filing on Thursday.
Soros disclosed the quarter-over-quarter increase in a filing with the Securities and Exchange Commission.
Soros raised his stake in Lehman ahead of a turbulent month for the investment bank, whose shares plunged in mid-July amid a broader sell-off in financials sparked by concern about government-backed mortgage companies Fannie Mae and Freddie Mac.
Lehman shares rose 63 cents, or 4.1 percent, to close at $16.20 before the news. They are down 18 percent since the end of June and off 75 percent so far this year.
