Glencore, VW don’t approach Lehman

Published Oct 4, 2015

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Ever since the demise of Lehman Brothers in 2008, the failed bank’s name is evoked whenever a company, industry or market gets into difficulties. Google the words “Volkswagen Lehman Moment” and you’ll generate 357 000 results.

Do the same for “Glencore Lehman Moment” and the search engine will deliver 144 000 items.

So I propose applying the following criteria to judge whether the label is warranted the next time there’s a financial car crash.

 

It isn’t a Lehman Moment if people are calling it one.

The fact that we can discuss Volkswagen (VW) and Glencore as having potential Lehman Moments proves they don’t qualify.

As well as killing its victim, the disaster has to be swift and be unexpected.

Only “here today, gone tomorrow” events count.

VW has slowed production but its 600 000 workers still have jobs; Glencore’s travails were evident to anyone who bothered to look at a chart of commodity prices.

Those images of shell-shocked Lehman employees carting boxes of their belongings out of the building won’t be repeated.

 

It isn’t a Lehman Moment unless somewhere in Germany there is a landesbank up to its neck in trouble.

The technical financial term is a “stuffee” – that special customer who will buy anything and everything their investment bank salesperson waves under their nose.

Talk to any bank salesperson and they’ll confirm that the name of that special customer almost always ends with the word “landesbank”.

When Wall Street was peddling dodgy mortgage bonds, the landesbanks were eager buyers – requiring a bailout that cost the German government e97 bn (R1.5 trillion) in state aid and guarantees.

So a true Lehman Moment must inflict pain on one of Germany’s state-owned regional banks.

On that score, you can bet VW is almost definitely eligible.

 

It isn’t a Lehman Moment if the endangered firm has a friend in its hour of need.

There’s a coterie of financial professionals, most of whom used to work at Lehman, who remain convinced the US authorities allowed the firm to go bust as revenge for Lehman’s refusal to participate in Wall Street’s 1998 bailout of Long-Term Capital Management.

On September 12, 2008, the US Treasury and the Federal Reserve summoned bankers, including the chief executives of Citigroup, JP Morgan Chase and Goldman, to a meeting, urging them to back Lehman.

Three days later, it became the biggest bankruptcy in US history.

So when the crunch comes, the victim of a true Lehman Moment must find itself friendless.

VW is too important to the city of Wolfsburg for that; if push came to shove, the German government would probably be obliged to take the company into care.

It’s harder to see who’d be there for Glencore.

 

It isn’t a Lehman Moment if the firm’s head isn’t issuing denials and reassurances, or blaming speculators.

Lehman shares dropped by 46 percent on September 11, 2008, slashing its market capitalisation to less than $3bn; it had been worth more than $45bn just 19 months earlier.

“Our core business and our strategy are sound,” chief executive Richard Fuld had told investors in June. “We can go it alone. I believe in the model.”

In the weeks before the collapse, Fuld had been trying to find out who was spreading rumours about his firm’s liquidity.

His time would have been better spent finding a buyer while a sale was still possible.

VW moved swiftly to defenestrate its chief executive, Martin Winkerkorn, once the world learnt it had been cheating on emissions tests.

Glencore chief executive Ivan Glasberg has maintained his silence, even though his personal net worth has dropped to about $1.9bn, down from $7.3bn in July 2014.

The company is tapping shareholders for $2.5bn, shelving dividends and planning asset sales as part of a plan to reduce its debt by $10bn in an acknowledgment that shareholders were not happy with its balance sheet.

 

It isn’t a Lehman Moment if it does not contaminate an entire industry.

The shock waves from the fall of Lehman are still rippling through investment banking in the shape of stricter regulation and more onerous capital requirements.

Government efforts to stop financial firms from being too big to fail stem directly from its collapse.

Glencore’s woes have yet to prove that vertically integrated commodity companies, running the gamut from mining to speculating on prices in the futures market, are untenable.

And while VW’s debacle may sound the death knell for the diesel car engine, the revolution coming to the automotive industry (electric power, self-driving vehicles, hire-don’t-own) was on track well before the German car maker got caught cheating.

So far, Lehman is still in a class of its own.

– Bloomberg

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