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Lehman pulls a Wells




Lehman decides to use Level 3 Accounting rules:

But, the real question bandied around Wall Street was exactly how much of their assets -- namely distressed mortgage-backed securities and loans made for corporate buyouts -- could be rendered worthless. Both lost value after defaults on loans made to people with risky credit spiked earlier in the year, which ultimately cascaded into a credit crisis that spread to all types of debt.

Lehman Chief Financial Officer Chris O'Meara, pressed by analysts to provide specific details of what loans and securities were troubled, refused because of competitive reasons. He said valuing assets left on Lehman's books has become more difficult because so many markets have locked up, and that's forced management to make judgment calls. (WHAT????)

Given the extreme uncertainty, there was speculation that banks were working together about how they value assets, and had even met with the Securities and Exchange Commission last week to go over their books. O'Meara declined to comment, though Lehman -- and its rivals -- typically divulge more when filing results to regulators.

Securities whose value is assessed only by the firm's best guess, which the SEC defines as 'Level 3' securities, now make up a slightly larger piece of the portfolio than they did three months ago.
(you'll be hearing alot more of this level 3 stuff in the future!!!)

O'Meara said Lehman ended the quarter with $6.3 billion of subprime-mortgage assets. He believes that 'the worst of the credit correction' is behind the investment bank. (I would agree, when you have these accounting tools)


Read the report:

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