Lehman's Off Balance Sheet Entities News

They disturb Jonathan Weil quite a bit:

Bloomberg.com: Lehman's Hedge-Fund Deals Leave Public in Dark: July 3 (Bloomberg) -- So let's say you're a big shot at Lehman Brothers Holdings Inc., trying to keep your firm from becoming the next Bear Stearns Cos. The stock has tanked. The market has doubts about your balance sheet. What do you do? One step to avoid would be any action that might create needless public uncertainty about your company's finances, because investors' greatest fear is of the unknown. So what does Lehman do? It sells billions of dollars of assets to a newly formed hedge fund that:

1. counts Lehman as a significant investor;
2. is run by seven recently departed Lehman executives;
3. is operating out of Lehman's office space, three floors down from the office of Lehman's corporate secretary....

Lehman isn't providing much information about its dealings with R3.... Here are the basic facts....

As of June 12, one fund managed by R3 had raised $1.08 billion from a single unidentified investor and was seeking to raise $4 billion more from others, according to a Form D disclosure.... Lehman has invested about $1 billion in R3, said Thor Valdmanis.... R3 said it is a wholly independent fund and has raised money from a variety of outside investors'' and that Lehmanis one of several passive, minority investors in the fund.'' A Lehman spokeswoman, Catherine Jones, declined to say whether Lehman was the unidentified investor cited in R3's SEC filing. Jones said Lehman has sold approximately $4.5 billion of assets to R3 since its inception in May 2008,'' all of whichwere previously managed by R3 Capital team members when they worked at Lehman.'' Jones declined to say whether the $4.5 billion was how much R3 paid for the assets or the value at which Lehman had been carrying them on its balance sheet. She also declined to say whether Lehman will treat R3 as a related party for accounting purposes....

So, what are we supposed to make of all this? Beats me....

As for the space R3 occupies on the 39th floor of the Time & Life Building in midtown Manhattan, it's in the middle of a 10- floor block Lehman began subleasing from Time Inc. last year. R3 and Lehman say the fund is paying rent to Lehman at market rates...

Comments

[Theinvestingspeculator]

I wouldn't be surprised if LEH goes bankrupt. I don't think they understand their derivative book, and are still over-leveraged. I was surprised by how some good stocks are down so much. See chart @
www.theinvestingspeculator.com

[MobiusKlein]

Did anybody else catch the ?Frontline? / PBS special on Enron last night? It certainly seems that not a thing was learned about off balance sheet entities.

[Ken Houghton]

LEH: Stretching the defintion of "arm's-length transactions" beyond even the skills of Reed Richards and Elongated Man combined.

[Bernard Yomtov]

"Off balance sheet." Grrrrr.

[PickledShark]

Meh It worked for Refco for 10 years and that was on realized losses, not unrealized positions. Why not? How much further can those mark to market assets continue to fall while the dollar plunges further. Having R3 hold them in the meantime spares them alot of balance sheet damage and costly money raising crusades or even bankruptcy. Now Lehman can say that the receivable is as good as gold and in 10 years it just might be.

[David Lloyd-Jones]

"Off balance sheet entity" reminds me of the olde cop formula "Nah, this is just a routine search."

If a company has off balance sheet entities off its balance sheet, then its balance sheet is a simple lie.