Lehman keeps falling

The investment bank's future really seems to be in doubt, despite yesterday's announcement about selling off assets. Shares are down sharply this morning (as they have been all week). "We thought getting news out of Lehman was going to clear the dark cloud but it really doesn't. It just leaves us with a company that's limping along, that may or may not make it," Arthur Hogan, chief market analyst at Jefferies, told Reuters. In the early trading, shares are down 40 percent. Here's one ominous sign: The cost of insuring $10 million of Lehman debt rose sharply on Thursday to $745,000, an all-time high. That’s measured by the spread of its credit default swaps, which widened to 745 basis points, compared with Wednesday’s high of 610. Before Lehman's announcement on Wednesday it was 475. (FT)

A front-page WSJ profile of CEO Dick Fuld can't be giving investors much confidence:

During his 14 years at the helm of Lehman, the former bond trader has built a reputation for driving hard deals and guarding the independence of the company that he has run like a close-knit family. But those who have negotiated with Mr. Fuld in recent months say he may have played his hand too aggressively -- holding out hopes that his firm was buffered from continuing pain on the market, and seeking better deals from would-be investors only to see potential partners walk away. Critics say the 62-year-old Mr. Fuld has been unable to take the steps necessary to shore up the ailing Wall Street giant. Amid the housing bust, they say, he has refused to drastically mark down the value of his firm's massive real-estate holdings. Mr. Fuld waited to raise capital until after many of his rivals. These critics say he has believed, mistakenly they say, that his access for the past six months to Federal Reserve bank-lending facilities would buffer the firm from continuing pain.

What about WaMu?: Its stock is down this morning about 20 percent, to $1.88 a share! A discouraging NYT story this morning no doubt is adding to concerns about the company's ability to survive, certainly as an independent entity. But even a traditional sale is looking problematic:

There are few banks healthy enough, or willing, to strike such a big deal. JPMorgan Chase has long had its eye on Washington Mutual for its big retail branch network, which would give it a foothold on the California coast and add to its heft in the New York and Chicago markets. A JPMorgan spokesman declined to comment. Even so, a change in the accounting rules, effective in December, make that extremely difficult. In the past, an acquiring bank would be able to record the value of the assets of the institution it bought as a portion of the value that it paid for them. Under the new rules, a bank must immediately mark them to where they could be sold, causing any acquirer to absorb a big hit to its capital. That would most likely force the buyer to raise fresh capital.

[CUT]

Some in the industry have started to wonder whether the government might have to step in. One option, similar to the approach taken with Fannie Mae and Freddie Mac, might be for the government to agree to buy shares issued by Washington Mutual. Some analysts said that would provide the capital to allow the bank to get through the current problems. Another might be for the government to provide assistance with a sale, similar to the Federal Reserve Bank of New York’s approach in the JPMorgan-Bear Stearns merger. Such a move would help reduce the blow to the acquiring bank’s capital caused by a sale, and allow it to start benefiting from such a deal.