NEW 3/17/2008 4:25:24 AM

 

... I decided to take a peek at their balance sheet before they are potentially bailed out or go belly up.

Below is the link to their 174-page, densley-packed, 10k filing:

Put on your reading glasses, this baby is all teeny, tiny print.

This 10k is as of November, 2007 which is an eternity ago in terms of what might have changed on Lehman's balance sheet (and especially the valuation of their "assets".), Spelunking around in the deepest, darkest corners of the tome I found the following interesting tidbits buried deeply within:

Page 64, High Yield Instruments held: $32.7 billion (But I could never find what these instruments were)

Page 66, Leverage Ratio: 30.7 times (but they purport to only have a 16 time leverage ratio, net)

Page 69, Notional Derivatives contracts: $737 billion. (And, on page 108, they show a $44 billion derivatives exposure, inculding $22 billion CDS.)

Page 88, "Assets": includes $313 billion in "financial instruments and other inventory positions owned" and about $42 billion in "receivables" (some further detail on these "assets" below).

Page 106, "Mortgages and ABS": Roughly $39 billion. ($5 billion of that is admitted "subprime".)

Page 110: Total "Level III" assets: almost $39 billion. (Clearly this number has a bunch of people nervous. That's 10% of stated assets, and let us not forget that these "Assets" could very well be worth much less than they were way back in November, 2007)

Page 117, "Short Term Borrowings: $28 billion (Let's hope they can keep getting that funding to roll over.)

Spock Conclusion: The gross leverage ratio is right up there with Bear's 32 times. However, the stated derivatives exposure is much less, if one believes the 10K. However, the $300+ billion in "assets" certainly would deserve much more scrutiny and the CDS position of $22 billion is alarming (did they write CDS on Bear?). Also, their cash position was much lower than Bear Stearns was, so any run on Lehman appears that it would more quickly deplete their capital.

All in all, Lehman appears to be eerily similar to Bear Stearns in terms of leverage, lack of cash and suspect "Level III" assets. Given today's hysterical environment, it wouldn't be surprising to see Leh get a bailout as well.