Key questions and answers from the first quarter earnings call conducted by Lehman Brothers Hooldings Inc. (LEH: chart) on March 18, 2008.
Meredith Whitney (Oppenheimer & Co.):
Comment on the outstanding issue of a lack of a permanent buyer for so many of these securities?
Erin Callan: There are less liquid available buyers today than there were six months ago, nine months ago. As a result you have seen the balance sheet move in a way that reflects very good profitable trading activity.
We did have a deliberate decision this quarter to take leverage down which is more appropriate for the increased illiquidity of the balance sheet and if the environment continues to stay this way, we will continue to be focus on that discipline.
Prashant Bhatia (Citigroup):
On the Fed facility, can you talk about how you view that from an opportunity perspective?
Erin Callan: We are not looking at it as deleveraging mechanisms, we look at it certainly, one, most importantly as a statement of confidence to other counter parties in the market who provide repo financing on various asset classes that there is an alternative.
It also gives us a great opportunity to do more client business and given the very attractive rates and margin haircuts that they have put in place for the facility, we will see where things are at the end of today after the Fed meeting.
Prashant Bhatia (Citigroup):
You mentioned you had executed two-thirds of the capital plan, could you just elaborate on what was done and what needs to be done?
Erin Callan: It was basically the refinancing needs for the year, about $22 or so $23 billion, just depending on how you looked at balance sheet growth. We have executed $16 billion, we did a large preferred stock deal which was our full year needs, we executed in February $1.9 billon.
That was going to be a smaller deal but we had the opportunity with great pricing to do a bigger one so we took care of our full year needs at that point. We did a $4 billion five year bond deal back in January, incredibly well received, great participation, great over subscription.
We have done a bunch of geographically diversified unsecured capital raises, raised capital in Singapore, and in Europe. So all over the globe, tapping into various sources and then we do a substantial amount structured notes.
Prashant Bhatia (Citigroup):
On the $14.6 billion in residential mortgage, can you just break that down between prime and alt A?
Erin Callan: That is primarily alt A. There is a small component of prime in there.
Glenn Schorr (UBS):
What do you use to hedge alt A?
Erin Callan: ABX best alternative, we also in our minds at least think about hedging through servicing. There is some CMBX too.
Glenn Schorr (UBS):
Can you describe what is in your unencumbered bucket of assets?
Paolo Tonucci: The majority of the unencumbered collateral is going to be corporate loans and the commercial mortgages, some residential mortgages and some securities that we are trading.
The majority of the securities are obviously within our broker dealer but there are some that will be outside the broker dealer for various reasons. The commercial mortgages as are low LTV and high quality and very much financeable in a variety of secured funding forms.
Brad Hintz (Sanford Bernstein):
What is the tenor of your commercial paper program right now, how much do you have outstanding?
Paolo Tonucci: We had at the end of the quarter around $8 billion outstanding in both the US and in Europe. Around half of that has been allowed just to mature.
