State-run Korea Development Bank now confirms the end of talks over a possible investment in Lehman, citing "a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions."
Moody's Investors Service warns that it may downgrade Lehman if the firm doesn't arrange "a strategic transaction with a stronger financial partner."
Lehman plans to spin off $25 billion to $30 billion in troubled commercial real estate assets into a new publicly traded company in the first quarter of 2009. The firm also says it is in talks to sell $4 billion of its UK residential mortgage portfolio to BlackRock , and expects a sale in the next few weeks. The company has slashed 1,500 jobs since May 31.
Will the deals go through? And if so, will they do the trick? Bill Fitzpatrick, analyst at Optique Capital Management, isn't too optimistic: "These are last ditch measures," he says. "They've tried to raise capital from sovereign wealth funds and others, and that didn't work. Now they're selling businesses, which destroys future earnings power."
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Not everyone is so spooked. Jim Chanos, president of Kynikos Associates and chairman of the Coalition of Private Investment Companies, tells CNBC, "We're probably as least short as we've ever been on financials. We were overweight on financials from 2005 on. ... Now, in our short funds, we're about 10-12 percent in financials -- probably as low as it's been in a while."
Chanos adds, "We're not short Lehman and haven't been."
Meantime, Warren Buffett's Berkshire Hathaway tells one of its units to stop insuring bank deposits above the amount guaranteed by the U.S. federal government, The Wall Street Journal reports.
The Dow, S&P and Nasdaq all end Wednesday slightly higher, though shares of many financials end the day lower.
One particularly brutalized stock is Washington Mutual, which drops more than 20 percent to $2.30, its lowest level in more than a decade. Trader Talk blogger Bob Pisani says that the turmoil at WaMu (destined to be taken over by JPMorgan Chase ) and giant insurer AIG are the real story now — with far more traders interested in those two firms than Lehman's fate.
In other economic news, mortgage applications surge 15 percent after the government bailout of Fannie Mae and Freddie Mac sent borrowing rates for home loans plunging to 6.06 percent.
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