Monday, September 15, 2008

Lehman & Merrill Lynch: Two of the Most Powerful Firms On Wall Street Gone By Monday

Update 1: NYTimes: "Nations Financial Industry Gripped By Fear" as the market unfolds this week. What banking giant will fail, and how low stocks will go?

WSJ: "Crisis on Wall Street as Lehman Totters, Merrill Seeks Buyer, AIG Hunts For Cash. Traders Brace For A Chaotic Monday."

Lehman Brothers
will file for bankruptcy protection, according to people close to the negotiations, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

Shares of Lehman fell 94% in the past year primarily due to losses related to commercial and residential real estate.

Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates. Lehman has retained the law firm Weil, Gotshal & Manges. A group of banks will provide a financial backstop to help provide a winding down of the 158-year-old investment bank. The Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.

When Bank of America's talks failed with Lehman Brothers, B of A turned its attention to Merrill Lynch, the next biggie in trouble. B of A will buy Merrill for about $50 Billion, or $29.00 per share, which is more than it was valued at just last week.

In the coming week, we'll watch as Washington Mutual fails, and A.I.G. either raises $30 Billion in capital, or goes belly-up.

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