Lehman Brothers and 'blood on the streets'

Mr Azzopardi Vella, currently economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.

I have often quoted a famous Rothschild saying that stock exchange fortunes are to be made on those dark days when 'blood is on the streets'. That is when there is panic share-selling without much good reason.

Some fabulous enrichment opportunities are presenting themselves at the moment and are being availed of by many careful readers who also make use of foreign travel to meet financially knowledgeable friends.

The 'game' of selling Lehman Bros, the great Wall Street investment bank, is hotting up. It has been one which has suffered enormous subprime losses and a mastadontic fall in its share price. The last great banking name to be dragged into its auction, and for practical purposes an auction for Lehman Bros is taking place, was that of Mitsubishi FUJ, the greatest Japanese Bank. Its interest was denied but what is certain is that the rumour of Mitsubishi's interest was strong enough to reach Bloomberg which does not usually broadcast rubbish rumours.

As early as August 22, the Financial Times made an analysis in its prestigious Lex column of the business of selling Lehman. The column is not written by cub financial reporters, but by bankers and politicians with a prestigious track record.

But before embarking on an analysis of Lehman Bros, a word or two must be said about the American economy, of both the northern and the southern hemispheres. There is a lot of opinionated nonsense being written about the present downturn. Stick to facts and economic ratios before forming an opinion. Politicians invariably take up stands connected with their chances of re-election and they might want to damage a rival or a prime minister who is plotting their defenestration. The present economic crisis in the US is getting an extremely bad press. Bank of England deputy governor Charles Bean was quoted with banner headlines in The Daily Telegraph on August 26 as saying that the "downturn will drag on".

It was wrong for him to liken the present global economic slowdown to the Great Depression of the 1930s. Nothing can be more erroneous than comparing present difficulties with those of 80 years ago. The biggest proof is the present de facto auction of Lehman Bros. There are plenty of buyers for this great investment bank, and the appropriation of the hard-bitten skills of its seasoned brokers, who have now been tested by the fire of adversity. There are also plenty of buyers at the Lehman Bros auction because there are plenty of investment opportunities in a fundamentally healthy world economy.

The ratio of debt to GNP in the US is 60 per cent. This is to be compared with that of Italy, which is much over 100 per cent. The subprime mortgage experience might be nasty, but now we are hearing of serious criminal action being taken against some of those who were responsible; something worse than malfeasance has been uncovered. The fraudulent selling of subprime bonds will put many a banker in jail.

This week there has been great and good news about Argentinian debt. The present business of selling Lehman must be seen against these favourable fundamentals.

The Lehman share price is 15. The analysts' consensus would average 53 per cent hold, 42 per cent buy and five per cent sell. The average analyst recommendation as regards share price would be over 28, with Citigroup going as high as 35.

The Lehman auction has yet to digest the last bit of unfavourable news analysed in Thursday's Lex column the first sentence of which reads: "Lehman Brothers simply cannot catch a break. The latest blow, as the firm explores all avenues to shore up capital, is the sudden demise of the Ospraie Fund, managed by the company in which Lehman took a 20 per cent stake in April 2005."

Readers will be kept posted...

johnazzopardivella@hotmail.com