Update: Lehman Liquidates Assets, Barclays Considers Purchase

[jpeyton]

WaMu and A.I.G. are next on the chopping/acquisition block. Both firms are posting 50% declines in their stock week over week, and are seeking huge sums of capital that nobody seems to be offering anymore. The Feds aren't handing out anymore sweetheart deals like they did with Bear Stearns.

Text

By ANDREW ROSS SORKIN, BEN WHITE and JENNY ANDERSON

In one of the most extraordinary days in Wall Street?s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.

The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.

Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industry?s reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.

The weekend?s once unthinkable outcome came after a series of emergency meetings at the Federal Reserve building in downtown Manhattan in which the fate of Lehman hung in the balance. In the meeting Federal Reserve officials and the leaders of major financial institutions were trying to complete a plan to rescue the stricken investment bank.

But as the weekend unfolded, Barclays and Bank of America, which had both considered buying all or part of Lehman, decided that they could not reach a deal without financial support from the federal government or other banks.

As a result, people briefed on the matter said late Sunday that Lehman Brothers would file for bankruptcy protection, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates, these people said. A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.

Lehman has retained the law firm Weil, Gotshal & Manges. The firm?s restructuring head, Harvey Miller, also spearheaded Drexel?s bankruptcy filing in February 1990.

As efforts to acquire Lehman faltered, Bank of America turned to Merrill Lynch and offered $50 billion in stock for that investment bank, people briefed on the negotiations said. The deal, valued at $29 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.

Merrill?s chief executive, John A. Thain, and Kenneth D. Lewis, Bank of America?s chief executive, initiated talks on Saturday, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, people briefed on the negotiations said.

Merrill?s 15,000 brokers will be combined with Bank of America?s smaller group of wealth advisers. The entity will be run by Robert McCann, the head of Merrill?s global wealth management business.

Mr. Fleming, Merrill?s president, will be president of the combined bank?s corporate and investment bank while Thomas Montag, a former Goldman executive who started at Merrill in August, will head all the merged company?s all risk, trading and institutional sales.

The leading proposal to rescue Lehman had been to divide the bank into two entities, a ?good bank? and a ?bad bank.? Under that last scenario, Barclays would have bought the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank?s troubled assets, according to two people briefed on the proposal. Taxpayer money would not be included in such a deal, they said.

But that plan fell apart on Sunday, all but assuring that Lehman would be forced to liquidate.

The overarching goal of the weekend talks had been prevent a quick liquidation of Lehman, a bank that is so big and so interconnected with others that its abrupt failure would send shock waves through the financial world. Of deep concern is what impact a Lehman failure would have on other securities firms, insurance companies and banks, which have come under mounting pressure in the markets.

Even as Lehman and Merrill played out, the insurance company, the American International Group, was planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company?s strategy said on Sunday.

A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades.

It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing.

Among the businesses likely to be sold is A.I.G.?s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.

Investors, afraid that A.I.G. would have to absorb further write-downs in its already damaged mortgage securities and collateralized debt obligations, have driven down the company?s shares in recent days. The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.

 

[Craig234]

Hm, I have two FDIC insured accounts at WAMU, wonder if I should reconsider that.

 

[mshan]

The free CNBC Asia webstream (every Sunday night) is currently active.

There was just a very insightful S&P Asia analyst on, and she said that a lot of this downward pressure in the stock and commodities market is due to redemptions / margin calls for mutual funds and hedge funds.

 

[LegendKiller]

Originally posted by: mshan
The free CNBC Asia webstream (every Sunday night) is currently active.

There was just a very insightful S&P Asia analyst on, and she said that a lot of this downward pressure in the stock and commodities market is due to redemptions / margin calls for mutual funds and hedge funds.

There has been a huge amount of redemptions from hedge funds.

It's humorous to see people blame oil on supply/demand when all of the evidence points towards speculation.

Lehman going down isn't surprising, they had a typical modern run on the bank. Saw it on Friday.

 

[MadRat]

I never thought I'd see the day of reckoning in the markets like this. Sorry to the people that go down with the rat ships. Can only be a good thing in the long run.

 

[dmcowen674]

Originally posted by: jpeyton
WaMu and A.I.G. are next on the chopping/acquisition block. Both firms are posting 50% declines in their stock week over week, and are seeking huge sums of capital that nobody seems to be offering anymore. The Feds aren't handing out anymore sweetheart deals like they did with Bear Stearns.

Topic Title: Breaking: Lehman To File For Bankruptcy, Merrill To Be Bought Out
Topic Summary: A.I.G. And WaMu Still On Suicide Watch; Wall Street Powerbrokers

and no one admits yet that I called every bit of these back in January 2007.

Back then everyone on here said no way not going to happen.

 

[mshan]

Yes, this throw the baby out with the bath water forced selling is probably creating a lot of latent value for disciplined, experienced, and diversified (20 stock focus fund or 40 - 50 stock broadly diversified mutual fund) contrarian growth / deep value mutual fund managers, if they and their investors have a time horizon that is measured in years (3 - 5 years going forward, perhaps), rather than days or months...

 

[jpeyton]

Originally posted by: dmcowen674
and no one admits yet that I called every bit of these back in January 2007.

Back then everyone on here said no way not going to happen.

I'll be honest, I don't think I was even paying attention to the markets in January 2007, so I might have missed your prediction completely. Kudos if you got it right.

 

[sandorski]

Originally posted by: LegendKiller

Originally posted by: mshan
The free CNBC Asia webstream (every Sunday night) is currently active.

There was just a very insightful S&P Asia analyst on, and she said that a lot of this downward pressure in the stock and commodities market is due to redemptions / margin calls for mutual funds and hedge funds.

There has been a huge amount of redemptions from hedge funds.

It's humorous to see people blame oil on supply/demand when all of the evidence points towards speculation.

Lehman going down isn't surprising, they had a typical modern run on the bank. Saw it on Friday.

I wonder if some Banks/Investment firms tried to make a quick buck to escape their dire situations? Wouldn't surprise me.

 

[nergee]

No matter what happens with Lehman, or AIG or Merrill, or with any other bail-out attempt, this will not get better.
It will get much worse. The system is broken, and we have spent our future.......

 

[AnnonUSA]

It's Helter Skelter! and it's coming down fast....

The New World order is beginning....

 

[LegendKiller]

Originally posted by: sandorski

Originally posted by: LegendKiller

Originally posted by: mshan
The free CNBC Asia webstream (every Sunday night) is currently active.

There was just a very insightful S&P Asia analyst on, and she said that a lot of this downward pressure in the stock and commodities market is due to redemptions / margin calls for mutual funds and hedge funds.

There has been a huge amount of redemptions from hedge funds.

It's humorous to see people blame oil on supply/demand when all of the evidence points towards speculation.

Lehman going down isn't surprising, they had a typical modern run on the bank. Saw it on Friday.

I wonder if some Banks/Investment firms tried to make a quick buck to escape their dire situations? Wouldn't surprise me.

I believe they did.

 

[LegendKiller]

Originally posted by: dmcowen674

Originally posted by: jpeyton
WaMu and A.I.G. are next on the chopping/acquisition block. Both firms are posting 50% declines in their stock week over week, and are seeking huge sums of capital that nobody seems to be offering anymore. The Feds aren't handing out anymore sweetheart deals like they did with Bear Stearns.

Topic Title: Breaking: Lehman To File For Bankruptcy, Merrill To Be Bought Out
Topic Summary: A.I.G. And WaMu Still On Suicide Watch; Wall Street Powerbrokers

and no one admits yet that I called every bit of these back in January 2007.

Back then everyone on here said no way not going to happen.

You did not. Your big call was Wells, which has turned out to be a retarded call.

 

[LegendKiller]

Originally posted by: AnnonUSA
It's Helter Skelter! and it's coming down fast....

The New World order is beginning....

Anything real to add?

 

[alchemize]

Originally posted by: dmcowen674

Originally posted by: jpeyton
WaMu and A.I.G. are next on the chopping/acquisition block. Both firms are posting 50% declines in their stock week over week, and are seeking huge sums of capital that nobody seems to be offering anymore. The Feds aren't handing out anymore sweetheart deals like they did with Bear Stearns.

Topic Title: Breaking: Lehman To File For Bankruptcy, Merrill To Be Bought Out
Topic Summary: A.I.G. And WaMu Still On Suicide Watch; Wall Street Powerbrokers

and no one admits yet that I called every bit of these back in January 2007.

Back then everyone on here said no way not going to happen.

So post your evidence, your original prediction. Search works fine now, no excuses.

 

[Thump553]

The way Lehman is playing out is a surprise to me. From everything I've read, Bernacke drew a line in the sand and said no federal bailout this time. A number of suitors for Lehman (Barclays, Bank of America) have come and gone, it looks pretty certain that the fourth largest investment bank in the US-one founded before the Civil War-is headed to immediate liquidation.

And as mentioned above, Merrill Lynch (also very big) is failing/being taken over and a huge, huge insurer, AIG, is selling off big chunks of itself in essentially fire sales.

I stick by my original opinion that the feds jumped in too early to grab Freddie Mac and FNMA. Now the feds either don't have the capability or the desire to put out the latest major fires. Almost for certain the stock market is going to take a very major beating tomorrow-and quite possibly push the rest of the economy over the tipping point as well. This is getting real serious real fast folks.

 

[mshan]

These guys were talking about price to value ratios in the 50% range, and that was before June of this year: http://www.longleafpartners.com/pdfs/08_q2.pdf

And a little historical perspective on stock market volatility (1970's oil crisis, 1987 crash, LTCM, the tech bubble, etc.) and long term stock market returns for savvy buy and hold investors: http://selectedfunds.com/pdf/SFSuccInv2Q08.pdf

 

[Thump553]

Originally posted by: Craig234
Hm, I have two FDIC insured accounts at WAMU, wonder if I should reconsider that.

Craig, if you are within the FDIC limits you have absolutely nothing to worry about regarding the safety of those accounts.

 

[HeXploiT]

:music:------------ :music:
The sun will come out, tomorrow
Bet your bottom dollar
That tomorrow, therell be sun
Jus thinkin about, tomorrow
Clears away the cobwebs and the sorrow
til theres none

When Im stuck with the day thats gray and lonely
The sun will come out, tomorrow
So you gotta hang on til tomorrow
Come what may...

Chorus:
Tomorrow, tomorrow
I love ya, tomorrow
Youre always a day away
:music:---------------:music:

Tomorrow will be a fun day for players.

 

[brencat]

Originally posted by: Thump553
The way Lehman is playing out is a surprise to me. From everything I've read, Bernacke drew a line in the sand and said no federal bailout this time. A number of suitors for Lehman (Barclays, Bank of America) have come and gone, it looks pretty certain that the fourth largest investment bank in the US-one founded before the Civil War-is headed to immediate liquidation.

And as mentioned above, Merrill Lynch (also very big) is failing/being taken over and a huge, huge insurer, AIG, is selling off big chunks of itself in essentially fire sales.

I stick by my original opinion that the feds jumped in too early to grab Freddie Mac and FNMA. Now the feds either don't have the capability or the desire to put out the latest major fires. Almost for certain the stock market is going to take a very major beating tomorrow-and quite possibly push the rest of the economy over the tipping point as well. This is getting real serious real fast folks.

I completely agree. And I'm saddened by what's happening to Lehman. I used to work there (recently in fact) and have many friends that will likely not have jobs after this week. Two friends in fact who are from India, on work visas, that if are laid off will be forced to find alternative employment within 2 weeks time or have to leave the U.S.. How's that for pressure?

 

[alchemize]

Originally posted by: brencat

Originally posted by: Thump553
The way Lehman is playing out is a surprise to me. From everything I've read, Bernacke drew a line in the sand and said no federal bailout this time. A number of suitors for Lehman (Barclays, Bank of America) have come and gone, it looks pretty certain that the fourth largest investment bank in the US-one founded before the Civil War-is headed to immediate liquidation.

And as mentioned above, Merrill Lynch (also very big) is failing/being taken over and a huge, huge insurer, AIG, is selling off big chunks of itself in essentially fire sales.

I stick by my original opinion that the feds jumped in too early to grab Freddie Mac and FNMA. Now the feds either don't have the capability or the desire to put out the latest major fires. Almost for certain the stock market is going to take a very major beating tomorrow-and quite possibly push the rest of the economy over the tipping point as well. This is getting real serious real fast folks.

I completely agree. And I'm saddened by what's happening to Lehman. I used to work there (recently in fact) and have many friends that will likely not have jobs after this week. Two friends in fact who are from India, on work visas, that if are laid off will be forced to find alternative employment within 2 weeks time or have to leave the U.S.. How's that for pressure?

I don't feel sorry for them. Live by the outsourcing sword, die by it.

 

[Dari]

This is what happens when the people that borrow money from you are the same people you sell products to. When they're screwed, you're screwed. Fools, the investment banks made all these commercials about diversification and prudent investment and never followed their own rules.

 

[Bitek]

Originally posted by: Craig234
Hm, I have two FDIC insured accounts at WAMU, wonder if I should reconsider that.

FYI, its per acct, so if you have a individ acct, that is one, a joint acct is another, a wife's checking is another...

You can have lots of accts w/ 100K ea. Look for the rules exactly, but you can have more than 100K at a bank safely as long as its broken up into smaller accts.




Otherwise, not sure what to make of this yet. Some major F'ups on wallstreet hanging their companies so carelessly like this. One bad set of mgmt and they destroy a 160 yo company.

One other nice feather in Bush's cap tho. Wow, talk about a record of failures under his watch. I remember everyone in 2004 talking about the housing bubble and it can't last, but everyone just kept moving along as it was. Hard to believe the smartest investors and regulators just kept their heads in the sand until it was too late. What a fuck up.

Other investment firms will come up to replace eventually, but the short term may get nasty.

 

[dmcowen674]

Originally posted by: alchemize

Originally posted by: dmcowen674

Originally posted by: jpeyton
WaMu and A.I.G. are next on the chopping/acquisition block. Both firms are posting 50% declines in their stock week over week, and are seeking huge sums of capital that nobody seems to be offering anymore. The Feds aren't handing out anymore sweetheart deals like they did with Bear Stearns.

Topic Title: Breaking: Lehman To File For Bankruptcy, Merrill To Be Bought Out
Topic Summary: A.I.G. And WaMu Still On Suicide Watch; Wall Street Powerbrokers

and no one admits yet that I called every bit of these back in January 2007.

Back then everyone on here said no way not going to happen.

So post your evidence, your original prediction. Search works fine now, no excuses.

My economy thread.

 

[brencat]

Originally posted by: alchemize

Originally posted by: brencat
I completely agree. And I'm saddened by what's happening to Lehman. I used to work there (recently in fact) and have many friends that will likely not have jobs after this week. Two friends in fact who are from India, on work visas, that if are laid off will be forced to find alternative employment within 2 weeks time or have to leave the U.S.. How's that for pressure?

I don't feel sorry for them. Live by the outsourcing sword, die by it.

Whoa...back off a second chief. These are two good friends of mine who have been in the U.S. living and working for over 8 years patiently putting in their time toward citizenship which seems to take 10 years for people that do it lawfully. They are IIT grads (only the top 1% of 100k people in India that take and pass a very tough entrance exam are admitted) and very smart analysts to boot.

Unlike Bear Stearns, the vast majority of Lehman's work force is very high quality people that will be out of work. A damn shame.