{ "docId": "019dd923-622c-750b-8b9d-35a25cc47ebe", "docSlug": "f69144a22bb1", "documentTitle": "Lehman Brothers (LEH)", "authorId": "04_Greenlight_Capital", "authorName": "David Einhorn", "documentKindSlug": "conference-presentation", "documentKindLabel": "Conference presentation", "sourceTypeSlug": "activist_investor", "sourceTypeLabel": "Activist investor", "presentationDate": "2008-05-21 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 8, "pageCount": 9, "prevPage": 7, "nextPage": 9, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 8, "notes": "This slide is a text-heavy narrative page from a report or presentation, likely detailing investigative findings regarding financial reporting discrepancies.", "elementsJson": null, "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b9d-35a25cc47ebe/8", "deckHref": "/decks/019dd923-622c-750b-8b9d-35a25cc47ebe", "deckJsonHref": "/decks/019dd923-622c-750b-8b9d-35a25cc47ebe.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b9d-35a25cc47ebe#slide-8", "components": [ { "bbox": { "h": 0.08, "w": 0.72, "x": 0.14, "y": 0.22 }, "kind": "paragraph", "text": "Ms. Callan told me that during the first quarter “a new party” came in and completed a pre-IPO round in February at a much higher valuation than Lehman paid. She said Lehman valued the stake at a 30% discount to where the new party came in to reflect the restricted securities Lehman held.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "31e92750-04be-4425-809d-e76f815009c7", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.72, "x": 0.14, "y": 0.63 }, "kind": "paragraph", "text": "One of my partners remarked, “This seems like one helluva power plug!”", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "73e49527-4e69-4d22-8f81-805ba77030e1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.72, "x": 0.14, "y": 0.67 }, "kind": "paragraph", "text": "Additionally, during the quarter Lehman marked down its non-Level 3 mortgage assets by an average of 7%. You can see on the table that it marked down the Level 3 mortgages by $750 million, or only 3%. Though Lehman says that about 20% of the Level 3 mortgage assets are in markets that did better, such as Asia, they also contain many of the lowest quality assets including below investment grade residual interests, investment grade and below investment grade MBS and all of the subprime exposure.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8efdfe7d-64dc-4fc0-bb86-9d1362dd8e4c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.09 }, "kind": "paragraph", "text": "Lehman had told others that it booked a large gain as a result of a pre-IPO financing round that was completed on a power company investment in Asia. The company in question was KSK Energy Ventures Limited, a power development company that operates three small power plants. According to Lehman, it booked a $400-$600 million unrealized gain on the investment in the first quarter.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "97410cd8-8c4f-4147-b4a6-cde569a39a59", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.72, "x": 0.14, "y": 0.79 }, "kind": "paragraph", "text": "In the real world, illiquid assets carry a discount. In the current melee the opposite seems true: illiquid assets are more valuable because it is easier to convince the accountants that they have not declined in value compared to liquid assets where there is more transparent pricing data.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9ed06af0-cd2f-4637-a7f8-18332840ad35", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.72, "x": 0.14, "y": 0.86 }, "kind": "paragraph", "text": "Lehman had $39 billion of exposure to commercial mortgages at the end of the year. The index of AAA CMBS declined about 10% in the quarter. Lower rated bonds fell even", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9f9002a6-e3df-4180-975d-00f61e164412", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.72, "x": 0.14, "y": 0.47 }, "kind": "paragraph", "text": "I confronted them with the evidence that there was no subsequent round and that Lehman was the lead, if not the only, investor in the January restructuring. Suddenly, the story changed.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a20a35cd-d95f-47a1-b60e-9c542bfee77e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.72, "x": 0.14, "y": 0.31 }, "kind": "paragraph", "text": "KSK Energy Ventures filed a draft red herring prospectus in India on February 12, 2008 that revealed a different set of facts. Lehman had made an initial $112 million investment in KSK Electricity Financing in November 2005. The company completed a restructuring on January 20, 2008, through which Lehman sold its original investment for a gain of about $65 million and concurrently purchased about one-third of KSK Energy Ventures for $86.5 million. The only other significant shareholder, KSK Energy Limited, owns 65% of the remaining equity and did not contribute capital during this round.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c206c038-36c0-49dd-90fd-162dbfd3e343", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.1, "w": 0.72, "x": 0.14, "y": 0.52 }, "kind": "paragraph", "text": "Management responded that it was “not sure” if Lehman was the lead on the round. It took what it “thought was the most conservative approach at the time and the low end of what all those data points produced.” Management followed-up in an e-mail stating that in February it had “revalued” its January investment based on a variety of analyses including an expected pre-IPO round, a DCF analysis, forward EBITDA multiples, comparable companies and a third-party research report.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "eb5a2bd2-f8eb-4163-be93-a9b1105768c0", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 9, "from": 8, "beatId": "75765555-3edd-4ff2-90e4-f73cf8cb2a37", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Solution", "beatSlug": "problem-agitate-solution-solution-provide-relief", "evidence": "Implying the need for greater transparency and scrutiny", "position": 2, "confidence": 0.8, "parentBeatName": "Resolution", "parentBeatSlug": "resolution" } ], "loops": [ { "to": 9, "from": 2, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "f5b8603d-73ce-49fa-a293-3a985765ea33", "evidence": "The sequence of slides building a case for greater transparency", "position": 0, "objective": "The cost of not scrutinizing financial reports", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }