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Milenko Kindl
NEW YORK - The outlook for Lehman Brothers' future seemed dim Sunday
after Barclays PLC withdrew its bid to buy the beleaguered investment
bank and government officials and Wall Street bankers remained at an
impasse about a rescue plan.
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The withdrawal of Barclays, which along with Bank of America Corp. was
considered a front-runner to buy Lehman, demonstrated how complicated
negotiations over Lehman's fate had become. And, Sunday afternoon, The
Wall Street Journal reported that Bank of America and Merrill Lynch &
Co. were involved in merger talks — which would knock Bank of America
out of contention as well.
The Lehman talks were aimed at selling the investment bank in whole or
in part. The sticking point was the potential buyers' insistence that
the Bush administration offer the kind of help it did in brokering the
buyout of Bear Stearns Cos. last March, when the government agreed to
a $29 billion loan to buyer JPMorgan Chase & Co. from the Federal
Reserve. But Treasury Secretary Henry Paulson said the government will
not help close a Lehman deal.
Lehman declined to comment on the talks.
If no deal were reached, it raised the specter of a bankruptcy and
liquidation of the 158-year old investment bank. Bankers and
investment banking officials briefed on the talks described them as
being both complicated and fluid, and that there was still hope that
an agreement can be brokered or that new bidders might emerge. They
spoke on condition of anonymity because talks were ongoing.
There were signs that Lehman Brothers Holdings Inc. might be edging
closer to a bankruptcy filing, with several reports that it has hired
Weil, Gotshal & Manges, the law firm that handled the collapse of
investment firm Drexel Burnham Lambert in 1990.
Moreover, there was also an emergency trading session being held at
the International Swaps and Derviatives Association to "reduce risk
associated with a potential Lehman Brothers Holdings Inc. bankruptcy."
The ISDA, which arranges trades for derivatives, said it was allowing
customers to make trades and unwind positions linked to Lehman — but
that those trades would be voided if no filing occurs before midnight.
Barclays, Britain's third-largest bank, backed out of talks on Sunday
after emerging during the morning as a front-runner to take over
Lehman's assets, according to a person inside the U.K. bank who spoke
on condition of anonymity, in keeping with company policy. The person,
who had knowledge of the talks, said the decision was "very unlikely"
to change. He said Lehman was attractive but did not meet what he
described as Barclay's stringent requirements.
The Journal said on its Web site that after Bank of America was unable
to reach a deal for Lehamn, it turned instead to a possible
combination with Merrill, considered a better fit for the bank.
Several private-equity firms were also believed to be interested in
Lehman's assets. Bankers and officials with direct knowledge of the
discussions described the talks as complicated Sunday morning. Top
officials from the Federal Reserve and the Treasury Department and
executives from several Wall Street banks were huddled at the New York
Fed's downtown Manhattan headquarters for a third day seeking a
solution to Lehman's financial crisis. Failure could prompt skittish
investors to unload shares of financial companies, a contagion that
might affect stock markets around the world when they reopen Monday.
Asian markets will begin trading Sunday night Eastern time.
Paulson, Timothy Geithner, president of the New York Fed, and
Securities and Exchange Commission Chairman Christopher Cox were among
those taking part in the meetings. Federal Reserve Chairman Ben
Bernanke is actively engaged in the deliberations but wasn't in
attendance.
Paulson went into the weekend discussions insisting that government
money should not be used to resolve Lehman's problems, arguing that
the current situation is different from the sale of Bear Stearns to JP
Morgan Chase six months ago in which the Fed put up $29 billion in
loans.
In Lehman's case, Paulson believed that financial markets have been
aware of Lehman's problems for a much longer period and have had time
to prepare and investment banks also now have the ability to obtain
emergency loans directly from the Fed, a crucial support that they did
not have back in March when Bear Stearns was rescued.
A person familiar with Paulson's thinking said on Friday that Paulson
was "adamant that there be no government money in the resolution of
this situation." This person, who spoke on condition of anonymity
because of the sensitivity of the negotiations, said on Sunday that
Paulson had not changed his views during the three days of talks.
Paulson's tough bargaining stance received support from outside
observers Sunday, who argued that the government had no choice but to
draw a line in the sand.
"If Treasury put money into the Lehman deal, then going forward no
deal would get done without Treasury help," said Mark Zandi, chief
economist at Moody's Economy.com. "Every potential buyer would wait
until Treasury stepped in and that would mean Treasury would be on the
hook for a lot more bailouts."
In the Lehman talks, bankers and government officials were also trying
to tackle a broader agenda that includes problems at American
International Group Inc. and Washington Mutual Inc., said the
investment bank officials, who were briefed on the talks.
AIG, the world's largest insurer, and WaMu, the nation's biggest
savings bank, have taken steep losses during the past year from risky
investments. Investors, worried they do not have enough cash on their
balance sheets to withstand further hits, unloaded their shares on
Friday.
Lehman put itself on the block earlier last week. Bad bets on real-
estate holdings — which have factored into bank failures and caused
other financial companies to founder — have thrust the firm in peril.
It has been dogged by growing doubts about whether other financial
institutions would continue to do business with it.
Richard S. Fuld, Lehman's longtime CEO, pitched a plan to shareholders
Wednesday that would spin off Lehman's soured real estate holdings
into a separately traded company. He would then raise cash by selling
a majority stake in the company's unit that manages money for people
and institutions. That division includes asset manager Neuberger
Berman.
Banja Luka
Banjaluka
NEW YORK - The outlook for Lehman Brothers' future seemed dim Sunday
after Barclays PLC withdrew its bid to buy the beleaguered investment
bank and government officials and Wall Street bankers remained at an
impasse about a rescue plan.
ADVERTISEMENT
The withdrawal of Barclays, which along with Bank of America Corp. was
considered a front-runner to buy Lehman, demonstrated how complicated
negotiations over Lehman's fate had become. And, Sunday afternoon, The
Wall Street Journal reported that Bank of America and Merrill Lynch &
Co. were involved in merger talks — which would knock Bank of America
out of contention as well.
The Lehman talks were aimed at selling the investment bank in whole or
in part. The sticking point was the potential buyers' insistence that
the Bush administration offer the kind of help it did in brokering the
buyout of Bear Stearns Cos. last March, when the government agreed to
a $29 billion loan to buyer JPMorgan Chase & Co. from the Federal
Reserve. But Treasury Secretary Henry Paulson said the government will
not help close a Lehman deal.
Lehman declined to comment on the talks.
If no deal were reached, it raised the specter of a bankruptcy and
liquidation of the 158-year old investment bank. Bankers and
investment banking officials briefed on the talks described them as
being both complicated and fluid, and that there was still hope that
an agreement can be brokered or that new bidders might emerge. They
spoke on condition of anonymity because talks were ongoing.
There were signs that Lehman Brothers Holdings Inc. might be edging
closer to a bankruptcy filing, with several reports that it has hired
Weil, Gotshal & Manges, the law firm that handled the collapse of
investment firm Drexel Burnham Lambert in 1990.
Moreover, there was also an emergency trading session being held at
the International Swaps and Derviatives Association to "reduce risk
associated with a potential Lehman Brothers Holdings Inc. bankruptcy."
The ISDA, which arranges trades for derivatives, said it was allowing
customers to make trades and unwind positions linked to Lehman — but
that those trades would be voided if no filing occurs before midnight.
Barclays, Britain's third-largest bank, backed out of talks on Sunday
after emerging during the morning as a front-runner to take over
Lehman's assets, according to a person inside the U.K. bank who spoke
on condition of anonymity, in keeping with company policy. The person,
who had knowledge of the talks, said the decision was "very unlikely"
to change. He said Lehman was attractive but did not meet what he
described as Barclay's stringent requirements.
The Journal said on its Web site that after Bank of America was unable
to reach a deal for Lehamn, it turned instead to a possible
combination with Merrill, considered a better fit for the bank.
Several private-equity firms were also believed to be interested in
Lehman's assets. Bankers and officials with direct knowledge of the
discussions described the talks as complicated Sunday morning. Top
officials from the Federal Reserve and the Treasury Department and
executives from several Wall Street banks were huddled at the New York
Fed's downtown Manhattan headquarters for a third day seeking a
solution to Lehman's financial crisis. Failure could prompt skittish
investors to unload shares of financial companies, a contagion that
might affect stock markets around the world when they reopen Monday.
Asian markets will begin trading Sunday night Eastern time.
Paulson, Timothy Geithner, president of the New York Fed, and
Securities and Exchange Commission Chairman Christopher Cox were among
those taking part in the meetings. Federal Reserve Chairman Ben
Bernanke is actively engaged in the deliberations but wasn't in
attendance.
Paulson went into the weekend discussions insisting that government
money should not be used to resolve Lehman's problems, arguing that
the current situation is different from the sale of Bear Stearns to JP
Morgan Chase six months ago in which the Fed put up $29 billion in
loans.
In Lehman's case, Paulson believed that financial markets have been
aware of Lehman's problems for a much longer period and have had time
to prepare and investment banks also now have the ability to obtain
emergency loans directly from the Fed, a crucial support that they did
not have back in March when Bear Stearns was rescued.
A person familiar with Paulson's thinking said on Friday that Paulson
was "adamant that there be no government money in the resolution of
this situation." This person, who spoke on condition of anonymity
because of the sensitivity of the negotiations, said on Sunday that
Paulson had not changed his views during the three days of talks.
Paulson's tough bargaining stance received support from outside
observers Sunday, who argued that the government had no choice but to
draw a line in the sand.
"If Treasury put money into the Lehman deal, then going forward no
deal would get done without Treasury help," said Mark Zandi, chief
economist at Moody's Economy.com. "Every potential buyer would wait
until Treasury stepped in and that would mean Treasury would be on the
hook for a lot more bailouts."
In the Lehman talks, bankers and government officials were also trying
to tackle a broader agenda that includes problems at American
International Group Inc. and Washington Mutual Inc., said the
investment bank officials, who were briefed on the talks.
AIG, the world's largest insurer, and WaMu, the nation's biggest
savings bank, have taken steep losses during the past year from risky
investments. Investors, worried they do not have enough cash on their
balance sheets to withstand further hits, unloaded their shares on
Friday.
Lehman put itself on the block earlier last week. Bad bets on real-
estate holdings — which have factored into bank failures and caused
other financial companies to founder — have thrust the firm in peril.
It has been dogged by growing doubts about whether other financial
institutions would continue to do business with it.
Richard S. Fuld, Lehman's longtime CEO, pitched a plan to shareholders
Wednesday that would spin off Lehman's soured real estate holdings
into a separately traded company. He would then raise cash by selling
a majority stake in the company's unit that manages money for people
and institutions. That division includes asset manager Neuberger
Berman.
Banja Luka
Banjaluka