Lehman Brothers Holdings Inc. (LEH.N)
has settled on a structure that will allow it to offload
billions of dollars in real-estate loans from its books,
according to the on-line edition of the Wall Street Journal.
The firm is still working out the final details and it
isn't clear when a plan will be unveiled, the Journal reported,
citing the difficulty of finding financing for a spinoff or
sale of these assets.
Lehman has also been looking for buyers for its asset
management arm Neuberger Berman.
According to the Journal, Lehman has created a so-called
good bank/bad bank structure for the real estate assets, which
would likely involve a spinoff of the holdings to shareholders
as well as an investment by outside investors.
A Lehman spokesperson could be immediately reached for
(Reporting by Phil Wahba; Editing by Gary Hill)
Alabama's Jefferson County
and lenders pulled back from the brink of a threatened
bankruptcy filing on Friday after the county proposed
restructuring $3.2 billion of soured sewer debt.
Alabama Gov. Bob Riley, who this week entered the
months-long talks, said in a news release that the county,
which is home to the state's largest city, Birmingham, will be
presented with a stand-still agreement against default through
September 30 and that negotiations with lenders will restart
A current stand-still agreement, which gives the county
more time to negotiate, had been due to expire on Friday, and
its expiration might have triggered what could have been the
largest municipal bankruptcy filing in U.S. history.
"The county presented a proposal that provides for a
restructure of the existing bond debt at lower, fixed interest
rates over a longer term," Riley, a Republican, said.
"Creditors received the proposal and agreed to respond next
The immediate issue among bond holders, insurers and the
county turns on about $850 million of notes with interest rates
that reset periodically and that defaulted earlier this year.
The notes are held by banks, including Bank of America Corp
(BAC.N) and JPMorgan Chase & Co (JPM.N).
Bank of America had no immediate comment. JPMorgan Chase
could not be immediately reached for comment. Several other
lenders and insurers involved were either not available to
comment or declined comment.
There is also about $2 billion of Jefferson County
auction-rate sewer debt outstanding, with the rest of the $3.2
billion comprised of fixed-rate debt, according to Standard &
"It's very positive if the county comes up with a solid
plan and prevents bankruptcy," said Matt Fabian, a managing
director at Municipal Market Advisors in Concord,
Massachusetts. "All of the (debt) issuers in the state will
suffer with higher yields if Jefferson County has to file for
Jefferson County originally sold the debt to pay for
upgrades to its sewer system, and its debt crisis began in
early 2008 with credit ratings downgrades of municipal bonds
insurers. Those ratings cuts throttled auction-rate markets and
dramatically increased the interest costs for Jefferson County
and many other issuers of auction-rate securities.
The interest on auction-rate debt resets through periodic
auctions, typically held every seven, 28 or 35 days. That
market seized up in February after Wall Street brokerages
stopped supporting the debt, and investors demanded much higher
interest rates from debt issuers.
A bankruptcy filing by Jefferson County over its sewer debt
would be the biggest by a U.S. local government since Orange
County, California, filed for protection in December 1994.
Such a filing, a rarity by a local government, would also
make Jefferson County the latest casualty of the global credit
crunch, hit by its exposure to the auction-rate securities
Jefferson County's sewer financing was also dogged by local
scandal. The U.S. Securities and Exchange Commission sued three
people, including Birmingham's mayor, for alleged fraud in
connection with interest-rate swaps tied to the bonds.
The SEC alleged that Birmingham Mayor Larry Langford took
more than $156,000 from bond dealer William Blount while
Langford was president of the county commission after steering
swap agreements in 2003 and 2004 to Blount's firm.
Riley, in his terse written statement, said: "The tone of
the meeting was positive and constructive, and I remain willing
to facilitate further progress towards a solution."
The talks occurred as Alabama officials braced for
Hurricane Gustav, which is now in the Caribbean and next week
may strike Alabama or elsewhere on the U.S. Gulf Coast as a
powerful Category 3 storm. It has already killed at least 68
(Writing and additional reporting by Michael Connor in
Miami; additional reporting by Karen Pierog in Chicago, Lisa
Lambert in Washington, and Joan Gralla in New York; editing by
Wall Street is set for another
volatile week after the Labor Day holiday, as investors track
the price of oil, key economic data and continued fallout from
the credit crisis.
All eyes will be on Hurricane Gustav and its potential to
disrupt U.S. Gulf Coast oil production and refining operations
on its expected land-hit early in the week. Any new threat to
oil production could boost the price of crude and in turn cause
stock investors to sell shares on fears that inflation pressure
Investors will also contend with a barrage of economic data
next week, notably the August payrolls report due out on Friday
and two reports on U.S. factory activity from the Institute for
But the hurricane will be the main focus at the beginning
of the week. On Friday, officials said the storm would build to
a dangerous Category 3 hurricane when it hits land.
In the past week, oil prices have surged and retreated on
concerns about the storm's path, strength and the readiness of
U.S. emergency officials to handle any disruptions.
Crude oil hit $120 on Thursday before settling at $115 on
Friday, bolstered by a stronger dollar.
Gustav "will probably be moving the market one way or the
other," said John Praveen, chief investment strategist at
Prudential International Investments Advisers LLC in Newark,
New Jersey. "If it fizzles then it will be a big relief on oil
Also driving the market next week are several government
This data comes after the U.S. government said gross
domestic product grew at a robust 3.3 percent clip between
April and June, above initial estimates of 1.9 percent.
But analysts said the strong showing was largely the result
of increased exports.
"If you look at GDP, you're led to believe the economy is
solid," said Hugh Johnson, chief investment officer of Johnson
Illington Advisor in Albany, New York. "But if you look at the
variables -- employment, industrial production and personal
income -- the economy does not look solid but weak."
On Friday, all three major indexes fell more than 1 percent
and all 30 stocks in the Dow industrials finished in the red.
Economic data added to the market's jitters after a
government report showed U.S. personal income fell unexpectedly
in July while spending slowed as the effects of a government
stimulus package wore off.
An inflation measure hit a 17-year high.
The Dow Jones industrial average (.DJI) closed down 171.47
points, or 1.46 percent, at 11,543.71. The Standard & Poor's
500 Index (.SPX) was down 17.93 points, or 1.38 percent, at
1,282.7. The Nasdaq Composite Index (.IXIC) was down 44.12
points, or 1.83 percent, at 2,367.52.
For the month, though, the Dow added 1.5 percent, while the
S&P rose 1.3 percent and the Nasdaq gained 1.8 percent.
The August jobs report from the Bureau of Labor Statistics,
is also expected to be weak, with an overall decline in
non-farm payrolls of 85,000 and no change in the unemployment
rate of 5.7 percent for August.
In July, U.S. non-farm payrolls fell for a seventh
Another month of hefty job losses would reinforce those who
argue that the economy remains in poor shape, Johnson said.
Market watchers are also awaiting data on U.S. auto and
same-store retail sales for clues about consumer spending in
the upcoming holiday season, along with the Federal Reserve's
"The markets are extremely volatile and moving according to
macroeconomic news quite a bit," said Prudential International
Investments' Praveen. "All of this data has the potential to be
Investors will also be tracking new developments among
financial companies, particularly beleaguered mortgage giants
Fannie Mae (FNM.N) and Freddie Mac (FRE.N), and Lehman Brothers
Holdings Inc (LEH.N), which is shopping its asset management
Lehman, the fourth-largest U.S. investment bank, is looking
for buyers for some $40 billion of commercial mortgages and
property on its balance sheet.
Although developments in the race for the White House will
not take center stage, analysts said that Wall Street will be
watching the Republican National Convention next week for
long-term market implications.
Investors will particularly hone in on Sen. John McCain's
tax and energy policy, especially following his selection of
Alaska Gov. Sarah Palin as his running mate.
"The markets are not going to be happy with an Obama
presidency...and McCain is not particularly loved by Wall
Street either," said George Schwartz, president at Schwartz
Investment Counsel in Bloomfield Hills, Michigan.
But with Palin, "conservatives are going to come out
roaring in favor," Schwartz said. "It's going to be a positive
influence on economic activity."
Schwartz added that the pairing could impact oil prices,
especially if Palin and McCain say they strongly support
"That premise of additional supplies is going to further
take the speculators out of the market and cause them to put
downward pressure," he said.
(Additional reporting by Herb Lash and Steve C. Johnson;
Editing by Leslie Adler)