Tokyo Mitsubishi Another False Rumour about a Potential Lehman Bid

Bloomberg News reports that Mitsubishi Financial Group denies any knowledge of a bid or interest in bidding for Lehman Brothers.

The conduct by those involved in both the financial press and the investment community in these false Lehman rumours has been disgraceful.

It deserves to be thoroughly investigated. All sales of Lehman stock of size should be recorded and examined for possible price manipulation by hedge funds and other inside trading. Lehman's use of off balance sheet entities should be examined prior to their earnings announcement.

Readers know that we have been suspicious of Lehman's claims that they were on sounder footing that the market was giving them credit for and had put the worst of their financial woes behind them. Our doubts were fueled by the number of open questions surrounding their claims of deleveraging and their extremely aggressive spin management and use of leaks to the press between earnings announcements to bolster their case. The combativeness seemed not merely to be a magnification of CEO Dick Fuld's famously pugnacious personality, but also a backs-against-the-wall reaction, a de facto admission that their situation indeed verged on desperate.

Lehman Expected to Post Another Loss

Mitsubishi UFJ Says It's Not Bidding for Lehman Stake
By Finbarr Flynn
Bloomberg News

Sept. 4 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc., Japan's biggest bank, denied a report it is considering entering the bidding for a stake in Lehman Brothers Holdings Inc.

``We are not preparing to bid or considering a bid for Lehman,'' said Takashi Miwa, a spokesman for the Tokyo-based bank.

Mitsubishi UFJ's main banking unit may seek control of Lehman, the London-based Times newspaper reported earlier, citing people close to the lender it didn't name. The Japanese bank, which has enough funding for a large acquisition, was expected to wait until after Lehman announces third-quarter results next week, the newspaper said.

Korea Development Bank this week said it's in talks to buy a stake in Lehman, the fourth-biggest U.S. securities firm. Lehman has renewed talks with Korea Development about a capital injection of as much as $6 billion, the Sunday Telegraph reported Aug. 31, without saying where it got the information.

Lehman spokesman Mark Lane declined to comment when contacted by Bloomberg News.

Last Updated: September 3, 2008 20:00 EDT

Tokyo Mitsubishi Expresses an Interest in Lehman... Maybe

Tokyo Mitsubishi says they might be interested by will proceed conservatively and wait until after Lehman announces its third quarter results next week to see what they have to say.

Apparently a trip to the US to perform a due diligence in New York with a look at the books such as the Korean government performed was not in the budget.

T-M says that if the price drops sufficiently after the announcement they may be in a position to make an offer.

We hate to sound cynical, but with all this media posturing about maybe deals we suspect that some folks are fishing for a backstop such as JPM received for Bear, and are using the media to float their trial balloons. Or in the worst case, some insiders are using media leaks to cover the sale of shares prior to the Lehman third quarter results next week.

And the search for a suitable husband for little Lehman by her father Hank goes on far and wide. Stay tuned for the next exciting chapter.


Tokyo Mitsubishi 'interested in buying' Lehman Brothers
Leo Lewis, Asia Business Correspondent
September 3, 2008
The Times

Japan’s biggest megabank, Tokyo Mitsubishi UFJ is poised to enter the bidding for a substantial stake in Lehman Brothers, and may even seek control of the ailing Wall Street titan, according to banking industry sources in Tokyo.

Senior sources close to the Japanese group say that the possible acquisition is being treated as a “once in a lifetime” opportunity but that the notoriously conservative bank will proceed with extreme caution. (Buying Lehman with extreme caution. Is that an oxymoron? Or a hint that a backstop from the Fed is required? - Jesse)

Tokyo Mitsubishi, which has ample sources of funding for a multi-billion dollar acquisition, is expected to keep its powder dry until after Lehman announces its third quarter results next week — an event that traders around the world believe could see yet another bout of “kitchen sinking” and another potential dip in Lehman’s share price. (If they are serious about an acquisition they cannot perform due diligence and simply look at the books with Lehman's management as did the Koreans? - Jesse)

Traders believe that, in addition to its ongoing woes, Lehman’s results could result in the bank being probed by analysts and investors over activities related to R3 Capital Partners, a hedge fund. The fund, which was established this spring by a former senior executive at Lehman and which has the bank as a “passive, minority investor”, has become the focus of rising market concern that it may provide yet more bad news for Lehman.

Lehman has consistently said that all its transactions with R3, as an investor and a seller of assets, are at arm’s length. The bank is understood to have sold perhaps as much as $4.5 billion (£2.5 billion) of assets to R3 since May. Traders in Tokyo and Hong Kong said that the next few weeks would show whether R3 represents an Achilles heel for Lehman in the way that hedge funds related to Bear Stearns contributed to that firm’s downfall.

The head of one Hong Kong-based dealing room told The Times that the results announcement was expected to be the turning point for Lehman. From the point of view of Tokyo Mitsubishi — or any other potential bidders — the period immediately after the results could present the same opportunity that is currently on the table but at a much cheaper price.

If Lehman surprises the market with more bad news or fails to convince that it has a decent capital injection on its way, its shares will fall again and that is when the big Japanese bid will come in, said a source at a large Tokyo brokerage. (And what sort of 'put' shall we call this? - Jesse)

The possible emergence of a Japanese-backed capital injection into Lehman comes as the troubled US firm remains locked in negotiations with the state-backed Korea Development Bank over the sale of a possible 25 per cent stake. (A media circus might be a more appropriate description for this entire sorry episode - Jesse)

Chosun Ilbo, South Korea’s largest daily, today reported that HSBC, a trio of US hedge funds and an unnamed Chinese bank may also be eyeing big stakes in Lehman. But a spokesman for HSBC told The Times: "We're not interested in acquiring an investment bank. We're focused on growing in emerging markets, not developing markets." HSBC is not thought to be interested in acquiring any parts of Lehman. (The Chosun Ilbo is either completely inept at checking sources prior to printing major stories, constantly citing sources of interest that later vehemently deny it, or they are complicit in the manipulation of markets through leaked misinformation from anonymous sources. Take your pick. - Jesse)

Charts in the Babson Style MIdweek 3 September 2008

Either the Fed Kills the Dollar or the Banks. Is It That Simple?

"Either the Fed kills the dollar or the banks. It's that simple. The poor innocent employees. How touching. Where's RL's concern for poor innocent dollar holders?"

Forbes: Communist Tool - The Skeptical CPA

Succinct, a little overstated to our eye moderated by the graying of experience, but true enough if one adds "the few Wall Street banks that gamed the system" and "the dollar over time." Either the Fed kills the Dollar over time or allows the Banks that have gamed the system and lost to accept their losses as gracefully as can be arranged.

The losses must be taken; they do not simply vanish. Every dollar of loss taken by the public trust is a hidden tax that is levied on all holders of the dollar. Even if one tries to make the improbable case that this inflation is offset by deflation it is still a reallocation of net wealth from the many to financial insiders.

The upper bound of the Fed's latitude is the dollar and our sovereign debt. The recent support of the banks is a policy choice, not a monetary action: a means of socializing the losses of the elite few for the sake of expediency.

A capitalism where an elite keeps all their profits and force their losses on the public is no capitalism and not even a democratic republic: it is a form of unrepresentative taxation by the banks that is a tyranny known as crony capitalism.

How can one set up a free market system in which one set of players have access to the house's funds and cannot lose? How does one sustain a game like that until the other players realize it is a blatant fraud and kick over the table?

The usual response is "but what are we to do? It is a crisis! Act now! Here are your choices!"

Make it an orderly process of receivership if required, but put the losses and the taxes directly on those who profited from the loss generating enterprises: shareholders, management, affiliates, and above all the insiders. By all means the central bank should lend freely, but at high rates of interest, not at subsidies.

Support what must be supported temporarily, but extract all incentive for those who gained so that they might be less tempted to do it again. That which is unprofitable and not rewarded is not desired; that which is punished will be deterred. These are the basics of natural law.

Investigate and punish any wrongdoing with commensurate fines and appropriately deterrent punishment including loss of freedom. Restore the integrity of the system through the enforcement of law and regulation already in place that has been undermined and neglected. Keep and reinstate that which has worked and reform the rest.

But above all, do not allow the situation to be resolved by an injustice to the public trust even 'this one time' for the sake of expediency. That is a moral hazard that stays with us and keeps regenerating. It is a distortion of the capital market system and an invitation to a procession of frauds and bubbles that eventually will wreck the dollar and the nation as we know it.

At first the comparison of this crony capitalism to communism was jarring. But as we thought about it, we saw that it was just another form of statism, in that the unelected few are unjustly apportioning resources at odds with a free market and the law.

Yes, it can be that simple. We might also say that either we restrain the incredible growth of the financial sector as a percentage of GDP and restore the system to some balance of production and capital allocation and accumulation or we will destroy it through this cycle of bubble, bust and credit crisis.

The share of financials in value added has steadily increased and has reached about 8 percent in 2006-2007. The share of profits, however, climbed to reach an extraordinary 40 percent and more!

The Financial Sector and Its Growing Excesses - Mostly Economics