…We have created a full-scale investment banking, securities trading and private equity business, a clear vote of confidence in the economic and social future of India—a future in which we at Lehman Brothers fully intend to play a large and growing part. Tarun Jotwani, Chairman & CEO, Lehman Brothers, India, in the foreword of the investment bank’s release of an India report titled India: Everything to Play For, last October. As BT went to press, another financial giant, American International Group (AIG), was pulling out all the stops to stay alive, with reports indicating that the sale of its aircraftleasing arm was just one last-ditch attempt to come back from the brink. AIG had reportedly sought a $40-billion bail-out from the US Fed. Reports indicate that there are other banks and mortgage houses in the US on the verge of going under. After Bear Stearns (which was snapped up at a fire-sale price by JPMorgan Chase) and mortgage-finance twins Freddie Mac and Fannie Mae (which were bailed out by the US Fed), Lehman becomes the latest—and the biggest—casualty of the oneyear-old subprime crisis, in what’s easily the worst period in the American financial system since the Great Depression.
Those were good times for Jotwani and his India team. The 158-year-old Lehman Brothers was preparing to celebrate its first anniversary since opening office in the upscale Ceejay House in central Mumbai. “Our fundamental vision is that India is at an early stage of a structural growth story… we want to be a part of this process. We do not want to create a cottage industry,” a full-of-beans Jotwani told Business Today in late-October. The India CEO had reason to be upbeat: Lehman, after all, was the bank that had just played advisor to the $98.2-billion mega-takeover of Dutch bank ABN AMRO by Royal Bank of Scotland.
Last fortnight, days after announcing a $3.9-billion net loss for the third quarter, ending August 30. Lehman itself was up for grabs. However, the bank, which had negative net revenues of $2.93 billion in the third quarter, was clearly not attractive enough to find a suitor, with Barclays and Bank of America walking away from the negotiating table. The sucker punch came when Lehman Brothers Holdings filed for bankruptcy protection. Even as it prepared to begin looking for ways to pay back creditors, bond holders and shareholders, Lehman said that it would explore the sale of its broking and investment management units, amongst other measures. As Jotwani’s India blueprint went up in smoke (an e-mail sent to Jotwani remained unanswered), Bank of America, in the meanwhile, saw more value in another Wall Street bank, Merrill Lynch. It bought Merrill for $50 billion, in the process throwing a lifeline to the John Thain-chaired bank’s investors and employees.
A section of Indian marketmen believes that with Lehman going under and Merrill finding a buyer, some of the uncertainty in the market has been dealt with. “For Indian markets, a lot of anxiety is now over. For instance, markets were going down when crude oil prices were on an upswing. Now crude prices are going down. Now, we need to see how the global issue of demand destruction pans out,” says Vallabh Bhansali, Chairman, Enam Financial Consultants. “It’s a low point for the brokerage industry as two famous names are going out of business,” he adds. The fear, however, is that this may not quite be the lowest point, yet.
—K. R. Balasubramanyam