Business

LEHMAN’S CARCASS RIPE FOR PICKING

While Lehman Brothers’ descent into bankruptcy sent fear rippling through the global financial system, its demise nevertheless offers opportunities for vulture investors looking for distressed assets.

Among the private-equity firms that are poised to pick Lehman’s carcass are Kohlberg Kravis Roberts & Co., J.C. Flowers & Co., Hellman & Friedman, Bain Capital and Clayton Dublilier & Rice – all of which had been in the running last week to buy some or all of Lehman.

Also likely to pick up some pieces of Lehman’s distressed assets are TPG Capital, the Carlyle Group and Steve Schwarzman’s Blackstone Group.

Flowers is expected to be particularly aggressive as he is backed by $4 billion in financing from China Investment Corp. – a Chinese sovereign wealth fund. CIC and Flowers had been in discussions with Lehman before talks broke down as CIC had wanted to buy Lehman’s securities for pennies on the dollar.

Unlike some of his rivals, Flowers might be especially motivated given he was simultaneously in talks with insurance giant American International Group late yesterday about injecting cash into that ailing company. However, those talks ended, freeing up Flowers to turn his focus to Lehman.

Bankruptcy experts say the process for putting Lehman’s giant portfolio of mortgage assets will take weeks, if not months, as bankruptcy courts will want to ensure an orderly sale.

The biggest question is what will happen to Lehman’s crown jewel, the asset-management business anchored by Neuberger Berman. The prevailing view is that Neuberger will continue to operate during the bankruptcy and will be sold in its entirety.

However, like any Wall Street business, Neuberger’s strength has been its talented executive ranks, which may be depleted by the time a sale occurs, as many are likely to be shopping for new role at other firms.

The one piece of Lehman that won’t be overly harmed by a liquidation are the accounts of relatively small, individual customers.

Lehman by law must separate client money from its owns accounts, just in case of such a collapse or a run on an investment bank.

Lehman’s client accounts are backed up by the Securities Investor Protection Corp. (SIPC), which insures brokerage accounts for $500,000 per person for such calamities. Congress created SIPC in 1970 to protect the growing horde of small investors.

Covered are stocks, bonds, money-market funds, certificates of deposit and custodial accounts such as retirement savings plans or 401(k) plans of client companies.