Wall St.'s Root Canal: Watching The Sale Of Lehman (LEH)

Drilling into the jaw bone without Novocaine. The competition to maybe buy or maybe not buy Lehman (LEH) picks up a new angle everyday. The latest is a report by Reuters that HSBC and an "unknown" Chinese bank might consider purchasing a piece. That would put them up against the Korea Development Bank. Several private equity firms want to buy Lehman’s money management arm, Neuberger Berman, and let the remainder of the company go to hell.

It is entirely unclear why any investor would want a percentage ownership of Lehman or why the company is not worth more in pieces than it is as one mess of a whole operation.

Neuberger is clearly valuable. It is walled off from Lehman’s troubled commercial loan business and whatever mortgage-backed paper the firm’s investment bank holds. While Lehman has a market cap of $11 billion, some estimates say Neuberger is worth $8 billion. Lehman’s M&A and underwriting businesses also has some real value. Lehman has a good Forex operation and a big municipal finance operation.

Dumping Lehman’s mortgage portfolio has long been the key to saving the company. It is difficult to see why current management cannot complete that process without outside capital. The road block to accomplishing that would have to be one where a large sum of cash would need to be added to the commercial loan pool for anyone to have interest in it. A long-term investor could take all of those assets and wait for them to mature. The process might be costly at first, but a smart vulture would probably make out well in the end.

It has been stated before but cannot be overstated that the more potential deals Lehman looks at to solve its problems the less likely it is that any one of them will get done.The current bidding process must already be extremely complex.

Like juggling axes.

Douglas A. McIntyre