Lehman Brothers shares crushed; market sees financial frenzy; Cleveland-Cliffs digs down under

By Aaron Hochman-Zimmerman

New York, Sept. 11 - Lehman Brothers Holdings Inc. may be the next Bear Stearns, but unlike recent sessions that were consumed by big Lehman losses, investors seemed to take the prospect of a failure in stride as the Dow put up a 164-point late-day rally.

Bank names were plastered all over the headlines on Thursday as Deutsche Bank AG was on the march for a German rival, and even Washington Mutual Inc. was seen with the usual suspects in the bailout game, including Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and U.S. Bancorp.

The bailout talk did not finish in financials, however. The day included talk of a possible Federal car loan for General Motors Corp.

Also, with his lawsuit behind him, "Hank" Greenberg seemed ready to start hammering at American Insurance Group Inc. to possibly break apart his former company.

Elsewhere, the frequent visitor to deal-land, Cleveland-Cliffs Inc., took advantage of general market weakness to tie up some loose ends with Australian miners Portman Ltd. and AusQuest Ltd.

Despite the havoc in the financials, the Dow Jones Industrial Average ended better by 164.79, or 1.46%, to end at 11,433.71, while the Nasdaq Composite Index added 29.52, or 1.32%, to finish at 2,258.22.

The S&P 500 improved by 17.01, or 1.38%, to close at 1,249.05.

Banks put their helmets on

Market watchers across the world were taking precautions as share prices were falling at dangerous speeds in the financial sector for most of the day.

Rumors even held that some contractors were preparing to replace signs over the doorways of some of the world's largest financial institutions.

The morning opened with reports of Deutsche Bank in serious talks with Deutsche Postbank in order to secure a deal to bring the flailing Postbank under Deutsche's control.

No details of the conversations were released.

Moving into the afternoon on Thursday, the movements around Lehman became more frantic.

Headlines referring to the bank had been consistently negative, including a nearly $4 billion loss on Wednesday. Still, they seemed to be met with disdain or arrogance from the Lehman leadership.

However, from the tone at the top of Lehman on Thursday, it became more evident that they were willing to accept the degree of their dilemma.

After what seemed like serious talks with Korea Development Bank failed, Lehman finally reached out to the other major financial players as a ratings downgrade loomed, reports said.

One trader said he hears Lehman stories at "a mile a minute."

"They should be taken out for $0.50," an equity analyst scoffed. "Somebody's going to come in .... They'll get backing from the government," he said.

No matter which bank comes to scoop up Lehman, "it's going to be a low, low price," he said.

Bear Stearns traded near $30.00 per share the Friday before the bailout, and JPMorgan brought an offer price of $2.00 per share, he said.

"Think about it; it's at $4.00 now," he said about Lehman.

Also, "it's likely to happen quickly," he added, noting that there is no sense in letting this issue drag the market down further.

Shares of Deutsche Bank (NYSE: DB) lost $1.54, or 1.80%, to finish at $84.07.

Shares of Lehman Brothers (NYSE: LEH) hemorrhaged $3.03, or 41.79%, to close the day at $4.22.

WaMu tracking similar course?

Possibly following Lehman toward the cliff's edge is Washington Mutual, the trader said.

"I am hearing they will be merged," he said, after a "behind-the-scenes push" from the Federal Reserve "and a nod to someone else," he said.

The "someone else" could possibly be Wells Fargo, JPMorgan or U.S. Bancorp.

Any of them would "love it, if they can isolate the crap," he said.

Another possible suitor is Bank of America, an analyst said.

In any of the cases, the Fed would be happy to have a major bank take control over WaMu, which was badly hurt in the mortgage market.

"I see these banks assuming WaMu a la Bear Stearns," the trader said "at current market [value]."

The Fed would step in with "some sort of valuation allowance for the crap [mortgages]," he said.

By the end of the day, WaMu released a statement to defend its honor.

The company "continues to be confident that it has sufficient liquidity and capital to support its operations while it returns to profitability," the statement said, citing "approximately $50 billion of liquidity from reliable funding sources."

The release in combination with a late-day upswing brought shares of Washington Mutual (NYSE: WM) up by $0.51, or 21.98%, to $2.83.

Greenberg ready to shake AIG's tree?

Rumors of Maurice "Hank" Greenberg followed the reports that he settled the lawsuits pending against him in Delaware's courts.

A trader was "hearing he is orchestrating something regarding AIG ... to shake it up somehow, now that the legal issue is in the past," he said.

What's coming may be "kind of like a break-up," an analyst said, although details were scarce.

"That's the house that Greenberg built," he said, adding that Greenberg cannot be happy with AIG under the stewardship of chairman and chief executive officer Bob Willumstad.

After early losses, AIG was also able to rally back as the market headed toward the close. Shares of AIG (NYSE: AIG) closed up by $0.05, or 0.29%, at $17.55.

Cleveland-Cliffs acquiring in Australia

Shares of Ohio-based mining firm Cleveland-Cliffs rose after it announced an offer to buy the remaining 15% of Australia's Portman as well as a 30% interest in AusQuest.

The Portman $450 million offer amounts to A$21.50 per share, or a premium of 21.5% of Portman's Friday closing price on the ASX.

"For Cleveland-Cliffs shareholders, this transaction is designed to enable Cleveland-Cliffs to move to full ownership of Portman. I believe that this final cash offer represents outstanding value for Portman shareholders and provides an excellent opportunity for shareholders to realize value from their investment in Portman," Joseph Carrabba, chairman, president and chief executive officer of Cleveland-Cliffs, said in a statement.

"There is no higher offer. Given that Cliffs already owns 85.19% of the issued and outstanding Portman shares, I believe the likelihood of another bidder emerging is extremely remote. In the event that our offer does not succeed, there is a risk that Portman's share price may fall significantly," Carrabba added.

Meanwhile, Cleveland-Cliffs announced an offer for AusQuest at A$0.40 per share for a total of A$26 million.

"The A$26 million cash injection will provide us with substantial funding to implement a very significant exploration campaign over the next three years, enabling us to do justice to the exciting results we have achieved at our Table Hill project in the Pilbara and our Diamantina Project in Queensland and to accelerate activity at our other key exploration assets," Graeme Drew, AusQuest's managing director, said in a statement.

Cliffs' trip to the outback comes in the middle of its ongoing deal to acquire Alpha Natural Resources Inc. for $10 billion, which has been opposed by its chief stakeholder, Harbinger Capital Partners.

Harbinger has been campaigning to expand its 16% stake at the Oct. 3 shareholder meeting, presumably to block the deal with Alpha.

Harbinger has consistently said that it would like Cliffs to put itself on the market. If it does not, many believe the private equity firm will divest its shares.

The deals to acquire the Australian firms are "sensible," said BMO Capital Markets analyst Tony Robson.

Financially it's a "small portion" of Cliffs' budget, and it is really just taking advantage of a poor equity market to mop up loose pieces of its business, Robson said.

"It's a mild positive" for Cleveland-Cliffs, he said.

It should not affect the bid for Alpha or the fight with Harbinger, "it's not a very sexy story," he said.

Shares of Cleveland-Cliffs (NYSE: CLF) tacked on $2.23, or 3.10%, to finish at $74.19.

Shares of Alpha Natural Resources (NYSE: ANR) were better by $1.23, or 1.87%, to end the session at $67.14.

Cypress' spinoff of SunPower

In technology, Cypress Semiconductor Corp., which owns 49% of SunPower Corp., will spin off all of its class B holdings of the profitable solar panel producer.

Cypress holders will receive 0.27 of a SunPower class B share for each share of Cypress held as of Sept. 17.

As Cypress' shares added $0.28, or 1.03%, to close at $27.54, an equity analyst called Cypress "a moderately attractive investment opportunity."

Also, as Cypress focuses solely on its semiconductor operations it may become a target in the crosshairs as industry consolidation continues, he said.

Shares of SunPower (Nasdaq: SPWR) took on $1.19, or 1.51%, to close at $80.20.

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