Lehman Brothers investments exposed as losses pile up..Alpha female CFO Ms Erin Callan NYPD cop's daughter's is on the case

The above chart was available after this post was written ...

Lehman Brothers losses announced last week see Lehman Brothers Q2 losses stun Wall Street - Big cash call looms have now become a trifle more transparent.

After all it takes some pretty smart footwork to have invested in something requiring a US$6Bn write off.

1. Tishman Speyer Properties (privately held) and Lehman joined forces just a year ago in May 2007 to buy (US$22Bn)a real estate investment trust (REIT) , another alphabetic black hole, Archstone Smith and S&P 500 company. This exciting investment was the largest apartment apartment building deal EVER. 80,000 "high end" apartments in high end neighbourhoods in New York, California ....where the Case Schiller index is showing 20% year on year price falls. Forbes reported the deal 29th May last year (just one year ago) Tishman Speyer group paid $60.75 a share, (18.8% premium on closing previous day) $22.2 billion including $6 billion in debt... the press release talked of "Archstone-Smith's valuable apartment and land holdings, which are concentrated in red-hot markets, such as the Baltimore-Washington corridor, New York City and California."

So Lehman own a chunk of the Rockefeller Center and the Chrysler building (briefly the Big Apple's tallest skyscraper in 1930 and made with 3,826,000 bricks ) but they are not alone financing was also helped along by Bank of America, Strategic Ventures and Barclays Capital... whose name keeps cropping up in lame duck property deals in the US of A.

Apparently the servicing of the US$16 Bn of debt is not being met by the rental revenues... a US$500 Mn reserve to cover this has already been tapped for US$72 Mn. (they completed October '07 ..gulp.)

Lehman has a new strategy instead of maxing income on rentals, they are selling the apartments. The buyers are not biting and are just waiting for prices to fall.

Since their smart buy in to the REIT , completed on Oct. 5, 2007, such properties have seen a 20% drop in value according to the SNL Financial US REIT Multifamily Index.

2. Then they teamed up with land developer Sun-Cal ( what a name eh ? Sunshine and California , it's open your wallet time boys) was flogging house lots across Southern Californai like there was no tommorow.

This included the so called Inland Empire east of LA where Lehman's $1.6 billion real estate fund helped buy the 710 acres. Lot prices have apparently slumped 60%. It is of major interest that Sun Cal who were just a developer not a builder, announced in October 2007 starting up Mosaic Homes, to build on SunCal’s land in Southern and Northern California. Mosaic gives the company another option to turn to as some homebuilders have backed away from building during the downturn.

“SunCal wanted to control its destiny,” said Jay Moss , Mosaic CEO at the time. Jay is now now running Real Estate Dimensions in Irvine and the Orange County Business Journal reports May 26th ..."The top executive and others at Irvine-based SunCal Cos.’ homebuilding arm have left the business started by the real estate developer late last year. SunCal now is postponing the start of homebuilding by Mosaic Homes, a unit it started so it could put up homes on some of its developments." ..."It’s unclear how many people remain at Mosaic. "...A majority of the company has been laid off in the past few months, as funding issues for the venture began cropping up"

Mysteriously adding that "The company’s been working with investors and lenders to refinance a number of projects. It finalized a sizable restructuring deal with Lehman Brothers Holdings Inc. last month."

Another was the McAllister Ranch 160 Km from LA a "2,070-acre masterplanned residential community"...." Only one place blends the charm of bygone days ...Greg Norman will design an 18 hole course... "SunCal Companies is honored to bring its Legacy of Fine Living™ to the city of Bakersfield. At McAllister Ranch, homebuyers will find more than a collection of homes; they will discover a comprehensive lifestyle experience. "

Well the Bakersville Californian had a different story in January this year, headlined ; McAllister Ranch at a standstill .... "When homes will appear — and when McAllister’s showcase golf course will open for public play — remains up in the air "..."In September 2007, SunCal defaulted on a loan for land within a proposed housing project "

The Albuqerque Journal in March had a round up of failed Sun Cal projects (8 in total) including " Genesis Golf Course Builders of Nevada filed a lawsuit in December claiming SunCal still owes it $830,000 for a Greg Norman-designed golf course Genesis built in Bakersfield. " ***



The Orange County Business Journal article quoted above said..."In April, a group of lenders filed a default notice—the first step toward foreclosure—for a SunCal project in Bakersfield where 6,000 homes are planned."

Result ? Well - there is US$1.6Mn assets from those deals on the books but the writedowns / writeoffs ? .. well "they are similiar to other large transactions that have occurred in relevant markets" that's beautiful,blonde, lissom and lovely Erin Callan, Harvard, NY Law School, Lehman's Finance Chief and Exec VP (since Dec 2007) speaking ... bankers speak = we got suckered just like everyone else.

Ms Callan is an Alpha female and got star treatment in the WSJ May 17th 2008 "Lehman's Straight Shooter"...."42-year-old Ms. Callan is emerging as a galvanizing force at Lehman and a finance chief who topples much of the conventional wisdom about CFOs. She also is the highest-ranking woman on Wall Street. " She also is not trained in accountancy. She has a personal shopper at New York retailer Bergdorf Goodman - Tina Sussman who trucks racks of clothes to her apartment.

Lehman also sold of US$7 Bn commercial mortgage debts, still leaving them with US$29.2 Mn - Ms Callan says they have taken a hit since the start of fiscal 2007 of US$3.5 Bn on commercial mortgages and cutely named "held-for-sale" assets ..bankers speak .. property that won't sell at any price.

Sassy superwoman Ms. Callan has a hard row to hoe.(See video of her front the Q1 results here with a very optimistic assessment of Q2) She does of ourse have a nemesis bearing down on her Mr Einhorn of Greenlight Capital who is openly shorting Lehman stock appeared on CNBC May 27th with Maria Bartiromo suggesting that the Q1 results were a trifle Transparent Lite ™ and that losses were being pushed forward. He claims Lehman are over leveraged

He does, as one commentator says almost " flat out call Erin Callan a liar "

``We are nowhere near'' the end of the contraction that left Lehman with about $3 billion of writedowns and losses in the past year, Einhorn said May 28th in a Bloomberg Television interview. ``Lehman is undercapitalized. They continued doubling down as the credit crisis evolved.''

As Mr. Einhorn so elegantly put it after Mondays disclosures: “(Lehman) just raised $6 billion of capital that they said they didn’t need to replace losses they said they didn’t have.”

Todays share price slump - see chart tells its own tale. Volume was an incredible 300% of average for the stock. This puts the market cap. at close at US$13.5 Bn so the US$6Bn rights issue dilutes shareholder interest by about 43%. Which in the mid / long term 3 -6 years makes any chance of earnings growth pretty dim.

Something is rotten in the state of Denmark. Lehman have got into some recent deals listed and detailed above which look less than prime and have unwound pretty damn quick. They are leaking supportive information via TV, management is circling the wagons. God knows what they have taken from the discount window sice the end of Q1.

The trajectory of the ordure hitting the air conditioning is beginning to become too, too predictable. There is no friendly Morgan Stanley to absorb them. Sovereign funds have been sniffing for some time without a result.

Is this the start of the unwinding of these big boys and their fictional assets ? Combined with the problems of the Monoliners is this the Bonfire of the Vanities ? It looks very much like it is.

Footnote **** But SunCal, which bought 57,000 acres from the heirs of the Atrisco Land Grant on the West Side (New Mexico) last year for US$250 million, Barclays Capital loaned money for the transaction and holds a deed of trust for the land.

UPDATE Saturday 13th June FT profile of Mr Fulda