March 19, 2008 | posted by Michael Baxter in Banking |

With the fall from grace of Bear Stearns, the panicking throng on Wall Street asked, Who will be next?

The answer, they decided:  Lehman Brothers.  Its business model was not dissimilar from Bear Stearns’, and on Monday its share price went through the loops, falling by 46 per cent, then rising by 40 per cent, then falling some more.  Yesterday, however, the bank came clean and revealed its latest results.  So too did Goldman Sachs, for that matter. Profits at Lehman plunged from net income of $1.15bn this time last year, to just $489m.  It suffered $1.8bn worth of write-downs,  and its CEO Richard Fuld talked of a challenging operating environment. Yet, investors whooped for joy, they had expected so much worse. 

But there was another number that had them reaching for the bubbly – that’s carbonated water, of course. To put it in Lehman’s own words, it revealed a “robust liquidity pool” of $34 billion at the end of the quarter.  Now, Bear Stearns supposedly had $17bn to call upon just days before its ignominious takeover by JP Morgan, so while Lehmans has lots of readies, there is still a chance they won’t be enough.  But for the time being, at least,  there was reason to say Phew, and shares went all the way back up again, finishing yesterday at a price not dissimilar from the level seen a few days ago, before the Bear Stearns debacle was revealed. 

As for Goldman Sachs, this bank has long managed to avoid much of the bad news permeating its rivals, and the last quarter was no exception. Actually, in percentage terms, the fall in net income was just as drastic, with the bank posting a net income of  $1.51bn, down from $3.2bn in the same quarter in 2007.  But this performance was much better than analysts had expected, and in the present environment, net income north of a $1bn is considered not half bad.