Although Moody's Investors Service affirmed its A1 rating on the senior
long-term debt of Lehman Monday morning, shares of the broker are in a
pre-market free fall, poised to open down 30%, after they'd already
took a 14.6% hit on Friday.
Bear Stearns was done in by at least
the perception that it would be overwhelmed by the sub-prime
derivatives that it specialized in; making banks like Lehman Brothers
and UBS AG the next potential
victims.
UBS' ability to fall back on its huge balance sheet, and large private
wealth-management business, make it better able to weather a liquidity
run than Bear Stearns. And Lehman's
prime brokerage business is also much smaller
than Bear's, suggesting that the bank isn't as vulnerable as Bear was.
Nevertheless the market is clearly jittery about Lehman's ability to
weather the crisis. Reuters is reporting that the cost of protecting
Lehman's debt shot up 65 basis points to 515 basis points, or $515,000
a year for five years to protect $10 million of debt, according to data
from Phoenix Partners Group.
J.P. Morgan, which is protected by the Federal
Reserve from blow-back on the Bear Stearns' credit default swaps, saw
its swaps widen by 25 basis points to 215 basis points, according to
Phoenix Partners. Investors can be expected to continue fleeing the
stock ahead of its earning announcement slated for later this week.
- George White
