!!Breaking!! Lehman Bros Insolvent by Monday, Financial Collapse to Follow.
Posted September 14th, 2008 by UKLooneyIs this the start of events that RP eluded to? Seems like the big banks are bricking it...
Preparations are being made in case the US investment bank Lehman Brothers has to file for bankruptcy protection.
The firm was pushed to the brink on Sunday after UK bank Barclays pulled out of talks to buy most of Lehman.
If no new financing is found before Wall Street opens on Monday, Lehman will have to seek so-called Chapter 11 bankruptcy protection.
In the UK, accountancy firm PWC has been lined up to run the British operations of Lehman.
BBC business editor Robert Peston says Barclays' decision to walk away from a Lehman deal was a huge setback for the effort to rescue the fourth-largest investment bank in the United States.
A source close to the talks told the BBC that Barclays was unlikely to change its mind.
Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday.
Bad bank, good bank
The rescue effort for Lehman is being coordinated by the US Treasury and the New York Federal Reserve.
The US government had hoped to arrange a bailout under which other US investments banks - such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs - would finance a "bad bank" that would hold the most "toxic" investments of Lehman in the property and mortgage market.
The "good bank" or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK's Barclays.
Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.
However, it appears that this plan is falling apart.
"The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers' money," a banker close to the talks told the BBC.
"In the light of the credit crunch and the parlous state of financial markets, Barclays feels it would be running a crazy risk if it took on [Lehman's obligations] without any protection right now," says our business editor.
Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.
'Too difficult to value'
"No other large firm should buy Lehman whole - its toxic real estate and securities are too difficult to value," said Professor Peter Morici of the business school of the University of Maryland.
"Only a fool would think he could fairly assess their value, unless those are assigned them a value of zero," he added.
Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.
The firm's share price has plummeted as fears over its future have mounted.
Uncertainty
Unless a bailout deal can be arranged and another large bank steps up to buy the good bits of Lehman, the US firm will have to file for bankruptcy protection.
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