Liveblogging the Lehman call

For those of you who have not heard an earnings call before, I thought I'd live blog it for you. Lehman reported its earnings this morning, which fell sharply, but still beat expectations, which has buoyed the stock price.

11:16 Analyst now asking if they will be swooping down, like vultures, upon the contents of the ruined citadel that is Bear Stearns. Response is a eulogy for Bear, followed by a long winded speech of which the upshot is: yes. This ends the call.

11:13 Last question of the call. Analyst asks how long fixed income buyers can sit on the sidelines with spreads where they are. One suspects that if Lehman knew this, they would be trading on it, not sharing it with us.

11:09 The analysts asking questions are really cute. They keep offering comments along the lines of "Keep your chin up guys! America's behind you." Well, not exactly. But that's the gist. I wish they'd be more mean, which is a great deal more fun for the listeners, but in fact Lehman has been admirably forthright about their financial position and deserves the congratulations--extremely minimal squirming for a company on modified suicide watch.

11:03 Treasurer, who has a lovely British accent suitable for impressing Yankee rubes, undertakes to explain just what those unencumbered assets are. As I suspected, they seem to be concentrated in those volatile, and less liquid, sectors of the fixed income markets. Nonetheless, Lehman's stock is up almost eight points since open.

11:02 Oops, net short on subprime, not all residential.

10:59 Interesting; if I heard right (a truck was going by) almost none of its residential portfolio is prime; it's almost all Alt-A. In other words, Lehman will still be heavily exposed if the subprime problems spread to other segments as some people are warning they will. She argues that they are well hedged in residential, and in fact net short in the sector.

10:57 Interesting question: is Lehman looking at the Fed facility that will soon be made available to investment banks as a way to delever in an orderly way, or as a way to do more client business? The latter, she replies, describing the opportunity to use low-interest money to do deals for clients as "incredibly attractive". Indeed, its pulchritude is apparently so overwhelming that she repeats the phrase three times. My enthusiasm for the new Fed facility is waning by the minute.

10:52 Someone from Oppenheimer points out that leverage levels are still high, with no market for many of the securities. When, exactly, is Lehman planning to get out? CFO admits that there are less liquid buyers than there were six months ago--stand by for stunning confession that George Bush is still president of the United States. Then she gets down to saying that the residential mortgages are still well hedged, even though commercial mortgage portfolios are pretty exposed.

10:51 Now the questions. This is almost always the most fun part of the call--that is, if you like watching CFOs squirm.

10:49 New understatement of the year "We do expect that fixed-income markets will continue to experience volatility."

10:40 Most of their commercial mortgage portfolio is fairly highly rated, which is happy to hear. One wonders, though, what happens if the mortgage contagion spreads.

10:37 Their credit spreads have tightened considerably since the earnings release. Not out of the woods yet, but I believe I can hear the highway.

10:34 She's claiming, if I heard her right, that there has been no net change in their repo position as of close of day yesterday. That is very, very reassuring news.

10:32 Now to the reassurance part. She says they have minimal reliance on commercial paper and other forms of short term finance. They started with cash of $34 billion in October, and now have $30 billion after taking care of their commercial paper. She also says they have unencumbered assets of $64 billion, and claims that they could tap into that pool at any time. Of course, it's not always quite that easy to tap those assets in times of crisis.

10:24 Now onto international markets, where Lehman has gotten most of its revenues recently, largely from Asia. Europe is also hurting, though not as much as us.

10:18 $1.8 billion writedown. Ouch. Big chunk is residential mortgages, bigger chunk is commercial mortgages, which are harder to hedge.

10:17 The woman from Lehman is now explaining the difference between mark-to-market and a permanent write-down to the people who have dialed in. I can't imagine what they are doing listening to this if they don't know this already.

10:12 It's a sad day for financial markets when a firm starts bragging that "We had no single concentrated large loss."

10:09 Understatement of the year: "In investment banking, we saw substantial decline in demand for debt securities." This is something like saying "In death, we saw substantial decline in the level of blood pressure."

10:06 Financial guru promises to explain their liquidity position, with numbers. This is much better than the standard approach of explaining it with extended parables about lost sheep. No one is going to listen to anything she says until she provides those numbers.

10:05 Legal eagle explains that if you buy their stock, nothing that happens to you as a result is their fault.

9:45 Banal hold music