Data Centers Crucial To Lehman Sale 301
miller60 writes "What assets retain value in the midst of a financial panic? Data centers. When assets of bankrupt Lehman Brothers were sold to Barclays Tuesday for $1.75 billion, Lehman's data centers and headquarters accounted for $1.5 billion of the value in the deal. That echoes the JPMorgan-Bear Stearns fire sale, in which Bear's two data centers and HQ represented much of the sale price. Amidst financial turmoil, Wall Street's high-tech data centers become the crown jewels for buyers of distressed assets."
Asset bigger than realized.... (Score:2, Informative)
Re:Asset bigger than realized.... (Score:2, Informative)
What?? I'm sorry, I gotta call your bluff here: [Citation Needed].
Banks *love* electronic retention, because it's zillions of times cheaper than paper retention. I was working on a project in the early 90s for a now-purchased-purchased-purchased bank that was nearly zealous in their conversion from warehouses full of checks and bonds and whatever to WORM-drive archiving of photos of said instruments. It didn't get much trendier (and certainly not 5-10-15 years behind) than that. Pretty much any way a bank can remove people or real estate from the equation they will... barring, of course, sexy corner-lot retail space that a competitor might use.
Re:It's all about the data (Score:1, Informative)
Multi-gigawatt generators? A very large nuclear power plant only puts out 1 GWe. Lehman's backup generators put out more? Are they fusion powered?
Re:It's all about the data (Score:5, Informative)
Terrible Article & Summary (Score:5, Informative)
I am an investment banker and can say with confidence that the datacenters were an afterthought in this deal. Important? Certainly. The most important? a joke. Bob Diamond and Barclays have wanted to extend its US investment banking business for several years, and found an opportunity to grab one at a fire sale. But the true value of the deal is enormously larger than listed, as it involves taking on assets estimated (with confidence, I'm sure)at $72 billion and liabilities of $68 billion. I'd recommend reading http://www.ft.com/cms/s/0/5c9dcc26-83f1-11dd-bf00-000077b07658.html?nclick_check=1 [ft.com] to inform yourselves about the transaction.
As to the Bear Stearns datacenters comprising the bulk of the value - that is about as wrong as you can get. The breakup fee (the fee paid to JP Morgan if the deal did not go through) was the building. JPM could have walked from the deal and gotten the builing, so to argue that the deal was for the building/datacenter is absurd. Let's not forget that the Federal Reserve alone lent $29 billion for the transaction. Datacenters are valuable, but not worth that amount of money.
It wasnt the Hardware, but it is now (Score:1, Informative)
Much of the lehmans data centers in London, are hosted in the East India Docks. I can Tell you that every thing has been switched of. Power, Water, Cooling. Equipment Like that AHU's Chillers, and Underfloor Cooling Units dont like starting up. Looks like i have a fun day tommrow.
Re:Asset valuation programmer seeks job (Score:5, Informative)
The trouble is that this has NOT been happening as long as mortgages have been around.
Anyone that knows anything about econ knows at the core Economics is about incentives.
In the last 10-15 years inventives in real estate have been flipped backwards.
Let's just take a few examples:
#1 The rise of a secondary market for mortgages.
There was a time when most mortgages were self-funded. The bank would fund the mortgage out of its own pocket. If they were sold, it was to FNMA.
Banks had a real incentive to do solid deals on homes with proven valuations.
In the late 90s the secondary market exploded. Somebody figured how to sell just portions of a mortgage by combining it with portions of other mortgages into a MBS (Mortgage Backed Security) and these securities were sold as ROCK SOLID CREDIT opportunites. The reason?
#2 The derivatives market and other developments
The derivatives market is valued at an est. 6tn. Bigger than stocks. Bigger than bonds. This and other developments, like the consolidation of the IBank industry led to real issues with the 3 credit rating agencies. There began to be financial incentives to give good, AA and AAA ratings to securities.
So these MBS's were given, yes, A, AA and even AAA ratings. You have to understand that AAA means "rock solid investment." That is, a AAA credit rating is considered to be as good as a t-bill.
#3 Brokers
Since banks sold mortgages to the secondary market, all of a sudden you didn't NEED $200k for 15 years to lend somebody $200k. All you needed is $200k for 180 days. This led to the rise of mortgage brokers. With far less scrutiny than banks, it was easier to fudge numbers to get deals made.
This led to an array of CRAZY financial instruments designed basically just to make a profit for the lender.
Take the infamous NINJA loan: No Income, No Job, No Assets. That is, you're given a mortgage based on nothing but good looks and your credit score. Nothing else is verified.
Or the interest-only loan with a balloon payment.
Or ARMs.
Technology played a part, too. A small role, but still, being able to access a HELC via a debit card makes that TV purchase or riding lawnmower or whatever a lot more tempting.
All of these things casue real issues with inventives.
Who is the appraiser working for? Well, he's hired by the loan officer. Who is the loan officer working for? Well, he's not lending his bosses money anymore, since the mortgage will be sold in 90 days after close anyway. Who is the agent working for?
This has NOT been business as usual. Make no mistake about that.
Re:There's a difference between 'dumb' and 'trusti (Score:4, Informative)
-Any taken-advantage-of borrower requires an even-more-taken-advantage-of lender. The borrower gets to walk away, at least having a gained some time in a home they shouldn't have moved into, while the lender suffers a huge loss. (Of course what actually happened here was the immediate lender, a broker, pocketed a huge gain and dumped it on other investors.)
I love how you gloss over this statement in parenthesis as if it's a minor point. The situation that occurred is that predatory lenders issued ARM mortgages to people that they knew would be unable to pay for them. Keep in mind, the issuing bank has a full financial report of the borrower's income, debts, and credit history. These bankers then offered deals such as "you can have a fixed rate mortgage, but you'll need a $10k down payment, but if you get an ARM, we can do it without a down payment!" I live in Tennessee, and by and far this state is not as hard hit as some others. One of the reasons is that we have protective lending laws. In this state, you cannot get a mortgage without a 10% (IIRC) down payment. That may seem unfair to those who cannot afford the down payment, but it's for their own good; if they can't afford the 10% down, odds are they cannot afford the mortgage, and a bank should be prevented from signing them into a contract they cannot afford to pay off.
Re:This is a Fire Sale, Hard Assets Count Period (Score:3, Informative)
The Fed has literally run out of money with the AIG nationalization and has asked the treasury to print more dollars NOW.
Just as a correction, AIG was *not* nationalized. It was provided a bridge loan while it's slowly dismantled. The US will then, in theory, be paid back through funds generated by the selloff of assets and subsidiaries. It's effectively a controlled liquidation of the company.
As for the Treasury programme, I have no idea what you're talking about vis a vis "[printing] money". They're providing a supplementary fund to the Fed, and they're getting the money by, among other things, auctioning T-bills just like they normally do. So what are you going on about, again?
Re:Disgusting-working with scale. (Score:3, Informative)
Re:All the banks are valueless. (Score:4, Informative)
From what I understand, it all comes down to everyone believing that real-estate value wouldn't stop rising.
That's a pretty good summation for parts of the country (e.g. the Washington D.C. area, probably areas like California too). Essentially, in W.D.C, people said "Well, the gov't is here, and so jobs are guaranteed. So housing will always go up." The problem is when it goes beyond where the base market can buy.
There's also another issue though - there were a lot of banks, etc. that issued bad mortgages outright. For example - the high school graduate students that moved into my parent's neighborhood - no jobs, but they got a mortgage, and eventually ended up in foreclosure. Of course, the city of Columbus, OH had some issues too politically as they tried to "clean up" downtown by moving the "poor" out into new housing (helping to get the qualified for loans they shouldn't have had) elsewhere in the state - e.g. by my parents, and other places in the Greater Columbus, OH area. For them, the politics work out good - their constituents are happy, and those people are now "someone else's problem" (literally), so it is hard to hold them accountable (their district was improved while someone else's was deteriorated).
Another good example - my wife and I were looking at buying a house in 2006. In getting pre-qualified, we looked at Washington Mutual and several others. Because we did not have a large-enough down-payment available (we had closing costs) at that time, WaMu was going to give us a double loan so we didn't have to have PMI (mortgage insurance). The first loan would be the mortgage itself, and the second was to become the down payment. We didn't really like it; but they were going to let us do that. We ended up not buying that year, and have since moved and bought a house through BB&T, with a better loan - only one loan too.
All-in-all, it was not just one issue that caused the problem.
Re:All the banks are valueless. (Score:3, Informative)
The problem is that something is only worth what someone will pay for it... and nobody is buying. Lack of liquidity is the real driver of the problems many of these banks and investment houses are seeing.
Re:Asset valuation programmer seeks job (Score:4, Informative)
The trouble is that this has NOT been happening as long as mortgages have been around.
Anyone that knows anything about econ knows at the core Economics is about incentives.
In the last 10-15 years inventives in real estate have been flipped backwards.
In the late 90s the secondary market exploded. Somebody figured how to sell just portions of a mortgage by combining it with portions of other mortgages into a MBS (Mortgage Backed Security) and these securities were sold as ROCK SOLID CREDIT opportunites. The reason?
That somebody was Alan Greenspan. When he took over as Fed Chairman, one of his goals was to shrink the financial sector to just a few banks to better compete with Europe. In 1933, the US passed the Glass-Steagall act; which made it illegal for Lenders (Banks) and Underwriters (Brokers) to be under one roof. This law was further tightened in 1956 to exclude ownership of out of state banks.
Fast forward to 1996. The Federal Reserve, under the leadership of Alan Greenspan (a former head of JP Morgan) decides to allow banks to have 25% of their business in Underwriting (brokerage). This decision effectively nullified Glass-Steagall. Then, in 1999, the Gramm-Leach-Bliley act repealed part of Glass-Steagall and opened the door for Banks to compete with Insurance and Security companies. This law was signed by then-president Bill Clinton. While it was created by two Republicans; it had bi-partisan support in an attempt to 'modernize' financial services.
#3 Brokers Since banks sold mortgages to the secondary market, all of a sudden you didn't NEED $200k for 15 years to lend somebody $200k. All you needed is $200k for 180 days. This led to the rise of mortgage brokers. With far less scrutiny than banks, it was easier to fudge numbers to get deals made.
This led to an array of CRAZY financial instruments designed basically just to make a profit for the lender.
This monster is precisely what the GLBA created. And this monster is precisely why the Tech Bubble and then the Housing Bubble occurred. It will be a decade, at least, before we have completely recovered. The Bush Administration is not at fault for creating the mess, but neither they nor Congress did anything to fix it early on--despite numerous warnings from economists across the country.
Re:All the banks are valueless. (Score:3, Informative)
Um no. Though houses, businesses and commercial real estate are worth less due to market conditions, they are certainly not valueless.
Part of the problem is that the assets that have dropped to nothing are not the homes themselves. They are securitizations of the loans issued to buy these homes. If you own such a securitized loan, you can't go to the 1000 homeowners that back it and say "hey, let's work something out." You can either sell it for pennies on the dollar or hold on.
Re:Asset valuation programmer seeks job (Score:3, Informative)
Re:Asset valuation programmer seeks job (Score:4, Informative)
An amusing footnote to illustrate how powerful the proto-financial-services people were in U.S. politics:
Citigroup nee Citibank merged with Travelers a year before GLBA using a temporary exemption from Glass-Steagall.
Smith-Barney, Travelers, Shearson and Primerica merged in 1994, five years before GLBA, using a similar waiver from Glass-Steagall compliance.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act [wikipedia.org]
Re:There's a difference between 'dumb' and 'trusti (Score:2, Informative)
I live in Tennessee, and by and far this state is not as hard hit as some others. One of the reasons is that we have protective lending laws. In this state, you cannot get a mortgage without a 10% (IIRC) down payment.
I'm in WV and to get a loan that isn't through the Federal Housing Administration (an FHA loan) you have to have 5% down but you pay PMI. You have to put down 20% to not pay PMI. If you *do* get an FHA loan then you only need 10% down to get out of PMI but around here (north-central WV) I got info last year about this time on minimum down payments for a mortgage and as of that time no one was changing their lending practices in the area: they still were only requiring 5% down. I haven't looked into it lately despite still being in the market to buy a house just because I haven't yet got far enough into the process of buying one to find out the mortgage requirements in-depth.
Re:Wot No Houses? (Score:3, Informative)
The problem has nothing to do with the houses. They could just as well be tulips. Or WoW gold.
For the last two decades US economy had one dirty secret -- while Federal Reserve continued producing money that are used almost everywhere in the world, nothing that happens within US borders or under jurisdiction of US government actually had value that would correspond to the amount of money produced in US. So basically a ton of steel is produced in China, and Federal Reserve in US issues a loan for the amount that can buy a ton of steel from China. After tens or maybe hundreds of transactions money are in China, ton of steel is in US, and the world as a whole has more dollars than it had before. However since the total amount of dollars in the world is so huge, the contribution of this ton of steel is diluted so much, no one is supposed to notice. Chinese can use those money to buy oil from Saudi Arabia. Saudi Arabia can pay it to build a piece of skyscraper. Skyscraper builders buy food. Farmers buy tractors, etc., and thus the newborn ton-of-steel-worth amount of dollars is dissolved somewhere in the world's economy.
What is wrong with this picture? Two things.
First and foremost, this can't last. Ton of steel is small potatoes on the scale of the world's economy, however increasingly larger and larger part of US trade follows this model. Dollars getting more and more diluted, thus losing their value. Anticipating further loss of value, foreigners use dollars as a smaller part of their trade, replacing them with local currency, euro or even barter. That frees more dollars to participate in less trade, thus making dollars even less valuable. If anyone cares, this is how dollar dropped so far compared to euro from the initial position of parity.
Second, it gives US Federal Reserve power to give someone "free" money and tell him "hey, China has this ton of steel -- it's yours now, you can pay us later (with money you will get from someone else who got them from us, too)!". While it doesn't happen exactly that way, this is the overall mechanism -- someone has to stuff Americans' pockets with money so they can pay for the import. And last time I have checked, there are no "free money" windows in Federal Reserve buildings. So how new money enter the economy? Through loans Federal Reserve does to large financial institutions. That happen to be investment banks and mortgage companies. Fannie and Freddy literally have a bunch of money and a task to distribute it to the population so those money can enter the worldwide economy -- if those money will end up in the hands of people who can afford to keep money in a bank, the Federal Reserve's mission is incomplete, they issued money and those money are not bringing foreign products into US! But equity loans accomplish this perfectly -- they are given to the money-hungry consumers, and consumers spend them on stuff, thus making all kinds of middlemen happy, and bringing products into US for the population to enjoy.
So no, there is no failure of "bad" loans, loans were given to people who can't pay them back because mortgage companies simply ran out of people who can pay them back, and money are still there, sitting on their balance, not doing what they are supposed to do -- being the sole driving force behind a paper-shuffling machine that US economy turned into. It doesn't matter what loans were supposedly for -- a poorly built box made of gypsum/cardboard composite on a wooden frame, standing on a piece of land is completely detached from the hundreds of thousands dollars it supposedly is worth. As I have mentioned before, same thing could (and actually did) happen with arbitrary objects such as tulips, and same thing may (and I expect it to happen eventually) with completely imaginary "objects" such as WoW gold and items as long as someone can convince other people that those objects have value.
It does not matter what it is, what matters is that a ritual of relinquishing control over such object for some money and a promise to pay those money