Sell Rating on Brokers

June 9, 2008 9:15am by

Note: This was written Sunday, and scheduled to post later this week — but given the Lehman news, its more timely this AM:

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We have been discussing some of the issues surrounding the brokers. We have had an "AVOID" on the sector for the past 2 years (due to balance sheet concerns), and we reiterated a sell on Lehman Brothers (LEH) last week for due to Technical factors. (My pal Charlie Gasparino disagrees with me on this).

Research from Portales reveals the some of the details regarding exposure to further write-downs.

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click for larger table

Brokers_major_asset_class_writedown

Source: Portales

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I do not have high expectations for sector earnings in Q2’08, with more write-downs of RMBS, weak underwriting activity, and questionable trading returns.

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Previously:
Dirty Tricks at Lehman? (June 2008) 
http://bigpicture.typepad.com/comments/2008/06/dirty-tricks-at.html

Related:
Lehman Set To Raise $5 Billion Amid Losses (WSJ)
http://online.wsj.com/article/SB121296377617855623.html

Lehman Sheds at Least $120 Billion of Assets to End Bear Stigma (Bloomberg)   http://www.bloomberg.com/apps/news?pid=20601087&sid=aUaJYcbwzbjI& 

Where Will U.S. Banks Beg Next? (WSJ)
http://online.wsj.com/article/SB121296970442155821.html

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What's been said:

Discussions found on the web:
  1. Chief Tomahawk commented on Jun 9

    How much longer will Mark Faber be able to open his CNBC telecast by saying “From the financial capital of the world”? Already commodities trader Kevin Kerr forsees a shift to Dubai’s market.

  2. Jim Haygood commented on Jun 9

    When you’re running 25 to 1 leverage, you’d better have low-default, low-volatility assets capping that monstrous pyramid. RMBS were thought to be such an asset. But the events of the last year have disproven that notion.

    Does this business model make sense, for any of the companies listed in the table? Or did the competitive pressure of making quarterly earnings push them all into excessive leverage?

    I vote for the latter …

  3. MarcM commented on Jun 9

    Fascinating how idiots like Gasparino come out to support companies who leverage to the max in highly volatile securities…who then expect to get bailed out by us poor schmucks. I wonder what’s their motivation…

    Anyways, LEH and all their bandits deserve to get their throats cut. Let them die, a purging is good once in a while. If the Fed is ready to save these bums then they’ll surely be ready to save us poor folls, right? Right?

  4. bonghiteric commented on Jun 9

    MarcM,
    Their motivation is that they keep a high-level source(s) inside the company. Trash the company and be seen as piling-on the shorts side and Gasparino is dead to any ranking insider.

  5. VennData commented on Jun 9

    Here’s some ratings you can sink your teeth into.

    http://www.nytimes.com/interactive/2008/06/08/travel/20080608_BALLPARK_GRAPHIC.html

    I was at the Sox game yesterday and half disagree: they have a decent Polish sandwich from the carts, but the Leinenkugel Summer tasted like blueberry sodapop.

    To the topic:

    …a friend picked up his season tickets from a major firm looking to cut costs. Once they start selling the season tickets, well… a potential indicator?

    Scanning Craiglist might reveal some interesting buy/sells, unless they deal them to an interested party in the manner my friend fell into his.

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