This post is an update on the High Stake Poker Game involving Lehman and a consortium of bankers and brokers still in progress. Interestingly, two new side games are forming, one involving Lehman, the other involving Merrill Lynch and Bank of America. More on that in a moment.
Those just tuning can catch up by reading
High Stakes Poker Game In Progress
High Stakes Poker Update: Barclays Refuses To Go “All In”
The State Of the Game
The dealers (the Fed, the Sec, and the Treasury) are getting annoyed that no one is willing to make an “all in” bet. In fact, all the players are just sitting around the table holding their cards close to their vest not willing to make any bets, let along go all in.
The players all want the dealers to make a bet. But the dealers have insisted they will not have a stake in the outcome. Remember that Lehman itself is the pot (see High Stakes Poker Update: Barclays Refuses To Go “All In”)
Side Games Form
It is fitting that side games would start forming given that nothing is happening at the main table for hours. One of the dealers has left the main room and is now dealing a new game in the “Cinderella Pumpkin” side room.
Here is the main condition governing play in the Cinderella Pumpkin Room.
If LEH files for bankruptcy by midnight tonight any trades (bets) made during this session stand, otherwise they’re all broken.
The above information is from a reputable casino source of mine who states “At least a few of our credit sales traders are in the office today. I just spoke with one — they’re having a special 2-hour trading session today from 2-4pm ET. The deal is if LEH files for bankruptcy by midnight tonight any trades done during this session stand, otherwise they’re all broken. Wild.”
Another casino employee with awareness of the side game informs me that Credit Default Swaps (CDS) on the investment index are up 50 basis points in this special session. Not being at the Casino, I cannot confirm any of this.
The Merrill Lynch Side Game
With Lehman crumbling, attention is now focused on the Merrill Lynch Side Game.
No one is interested in Lehman and the dealers are increasingly desperate for some large bets to be placed. Inquiring minds need to consider Bank of America in Talks to Buy Merrill Lynch.
Bank of America is in advanced talks to buy Merrill Lynch for at least $38.25 billion in stock, people briefed on the negotiations said on Sunday, as a means to preserve that investment bank while Lehman Brothers looks likely to collapse.
The move suggests a desperate effort at triage on Wall Street, as Bank of America works to shore up the likely next victim of the credit crunch. A deal, valued at between $25 a share to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.
Bank of America, the nation’s second largest bank by asset size, had been mulling buying Lehman, perhaps in a consortium with other financial players. But with financial aid from the government looking unlikely, Bank of America has moved on to Merrill, these people said.
As Lehman began to totter in recent weeks, investors feared that Merrill would be the next victim of the credit squeeze. Shares in Merrill, which has already reported tens of billions of dollars in losses, have plunged more than 68 percent over the past year.
Why or how Bank of America is in any position to be able to buy Merrill Lynch at an amazing $38.25 billion (Merrill closed at $17 on Friday) when BAC was not in a position to buy Lehman remains a mystery, but that is the amazing rumor from the Merrill Lynch side room.
Mike “Mish” Shedlock
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