Lehman: Battered Hard

Now that European markets have closed, it seems that the US markets are taking a decided turn for the worse, with Lehman Brothers unsurprisingly leading the way down: it's dropped more than 40% so far today and no one knows where the floor might be.

Meanwhile, my hopes that JP Morgan might keep most of Bear Stearns as a going concern in the hope at least of selling the bits it didn't want are rapidly going up in smoke: CNBC is now reporting that JPM plans to fire half of Bear's 14,000 employees, a truly drastic swing of the ax.

In the UK, MF Global took by far the biggest hit:

A firm that was worth $3.6bn at the end of February, was worth $2bn on Friday and then $600m on Monday. Without any news.

We always knew the markets today were going to be volatile, so it's probably worth not reading too much into movements in Lehman's share price in particular. Lehman's reporting its earnings tomorrow, that could be its big opportunity to redeem itself. But Accrued Interest asks a pointed question: did we need to go through all this at all?

Someday when we really know everything about what really happened at Bear Stearns, it will be interesting to see whether Bear would have survived if they had access to the discount window and/or the TSLF. In other words, had the Fed acted quicker to extend liquidity to dealers, would be have been better off?

My feeling, looking at Lehman's share price today, is no. After all, Lehman has access to the Fed's 3.25% discount window, which means it isn't at risk of suffering the same liquidity crunch which did for Bear. But the markets don't seem to care. Only the truly brave and/or foolhardy are buying financials at this point.