Below is the June 11 letter and my comments....
LEHMAN BROTHERS
399 PARK AVENUE, NEW YORK NY 10022 TELEPHONE (212) 526-0977 FACSIMILE (646) 758-4269
MICHAEL J. ODRICH, MANAGING DIRECTOR, HEAD OF PRIVATE EQUITY
Dear Partner:
As the second quarter comes to a close, financial markets remain under stress. Actions taken by the Federal Reserve have provided additional stability for capital markets, although the operating
environment has yet to revert to what we would consider normal. We write to discuss how Lehman Brothers has been impacted and to reiterate our confidence with where we stand as a Firm.
My comment: Did they say confidence?
On June 9, Lehman Brothers pre-announced second quarter financial results and a $6.0 billion capital raise through offerings of Common and Preferred Stock. Notwithstanding the solid underlying performance of our diverse client businesses, our Firm results this quarter were clearly disappointing, negatively impacted by mark to market adjustments and principal trading losses. However, with our strengthened balance sheet and our well-diversified global business, we are well-positioned to serve our clients and execute our strategy.
My Comment: How can they have solid underlying performance, but disappointing results? That is like saying that I am pleased about the results of my diet plan, even thought I have gained 40 pounds.
Actions taken thus far in 2008 have resulted in significant balance sheet deleveraging and reduced exposure to key asset classes, improving our overall capital position. We conclude the second quarter with our strongest capital ratios. The oversubscribed $6.0 billion equity offering, in addition to $8.0 billion of total capital raised through the end of May, reflect the strength of our business model, capital base, and liquidity profile of the Firm. The Firm will close the second quarter with a record level of liquidity estimated at $45 billion, up from $34 billion at the end of the prior quarter. As a result, Lehman Brothers has among the strongest liquidity position among our broker/dealer peers.
My Comment: So, the strong capital position is a result of their strong business model. For a second there, I thought it was due to the cash infusions through preferred issuance and the recent dilutive transaction. Simple math here friends.... 8+6=14, 14+34=48. The point is that this quarter, Lehman evaporated at least $3 billion of liquidity. As for their comments about being in the strongest liquidity position as compared to their broker/dealer peers; frankly, that scares me...
In sum, our liquidity and capital position is strong. We continue to see solid results in our core client businesses and we remain confident about our financial condition and our ability to execute our mission of delivering outstanding investment performance on your behalf.
My Comment: Good, because for a second there, I was worried. When it comes to outstanding investment performance, I wonder what they use as a benchmark?
Importantly, our Private Equity business remains strong and focused on the significant opportunities created by the dislocations in the credit and equity markets. Investors providing liquidity in this market with longer term capital will be very well rewarded. The Lehman Brothers platform continues to provide an outstanding flow of attractive investment opportunities.
My Comment: What else could they say here? This is a total sales job designed to keep money at Lehman and attract more. "Feed the greed" about opportunities and provide an underlying message that will deliver a subtle thought that investments in Lehman's debt and equity issues will be fine.
The Private Equity business at Lehman Brothers was founded in 1984 and remains an important component of the Firm’s global business strategy. Lehman Brothers and its employees are the largest LP in aggregate in our funds and the Firm will continue to invest significant capital in our future funds. Although Wall Street firms have reduced overall headcount during this difficult period of time, we increased the total headcount of Private Equity and made significant investments in our business during 2008.
My Comment: Bear Stearns employees are the largest shareholders of their firm as well. What is the point of this blathering? Maybe it is similar to the comment: "It is what I invested my grandmother in..." Famous last words.
We greatly appreciate our partnership with you and the trust you have placed in us. We will continue to update you on any significant developments in our business. If you have any questions about current market conditions or your portfolio, please do not hesitate to contact us.
Sincerely,
MICHAEL J. ODRICH
My Comment: You have the number, let him know what you think!
