The latest e-mail newsletter from Tim Quast of ModernIR Trading Intelligence, which tracks the flow of shares through the increasingly complex channels of the equity market and seeks to help public companies and their IROs understand these movements, comments on the impact of Lehman Brothers’ implosion on the rest of us.
Quast notes that ModernIR’s tracking showed heightened activity by the Lehman proprietary trading desk in the weeks leading up to the collapse – possibly unloading equity positions to raise cash. He guesses that the impact of selling off Lehman’s equity positions in a bankruptcy may be “nominal,” less than 5% of equity values, except where Lehman holds concentrated positions in particular companies.
More important is the prospect of Lehman’s withdrawal as a prime broker and banker – the shrinkage of its role as a trading partner and provider of liquidity in many, many sectors of the capital markets:
This is no small demise, folks, and to think we won’t feel ripples for months is naïve, seems to me. Hedge funds are now without a major source of liquidity, financing and support services. Risk managers are without a major counterparty. This will absolutely discount equity prices by 10% at least we think, because higher risk and less access to capital means lower stock prices. The good news is that at last the government stayed out, and we can finally rinse ourselves of financial cholesterol and get healthy again. But it’ll take two years to sort the mess out.
Quast also suggests that, with bulge-bracket firms not bulging nearly so much, IROs should cultivate retail investors and smaller broker-dealers.
(We list the ModernIR site in our blogroll to the right, or link here.)