Lehman fails - Merrill Lynch is taken over

Monday, 15 September, 2008

BBC ONLINE 15.9.08
Lehman Bros files for bankruptcy

[Picture: Lehman Brothers employees leave their office with cardboard
boxes]

The fourth-largest investment bank in the US, Lehman Brothers, has
said it will file for bankruptcy protection, amid a growing global
financial crisis.

Lehman had incurred losses of billions of dollars in the US mortgage
market.

The move threatens to deal a further blow to the global financial
system, as banks unwind their deals with Lehman.
Merrill Lynch, also stung by the credit crunch, has agreed to be
taken over by Bank of America in a dramatic weekend of events for
Wall Street.

Stock markets in Europe and Asia dropped sharply and the dollar
tumbled against the euro and the yen as Lehman's failure raised fears
about the strength of the global financial system.

The global financial economy has never in recent years been tested
by quite such a combination of accidents and jolts to confidence

Robert Peston, BBC business editor

The FTSE 100 index of leading UK shares was down 160 points, almost
3%, at 5256.50 in early exchanges.
Wall Street is also expected to open lower in what is likely to be a
tense day of trading.

The Bank of England and the European Central Bank said they were
monitoring money markets and stood ready to intervene if necessary.

Talks collapse
The chance that Lehman Brothers could collapse increased sharply
after the strongest potential buyers pulled out at the weekend.

Barclays and Bank of America had been in talks to rescue the bank but
negotiations faltered when it became clear that the US Treasury was
strongly opposed to using government money to help clinch a deal.

Greg Wood, the BBC's North America business correspondent, said that
police had cordoned off the bank's headquarters in New York and staff
were leaving with cardboard boxes as onlookers gathered to watch the
bank's demise.
"I think the whole history - 150 years of effort and hard work -
that's the most saddening part for me," said one Lehman employee as
she left the building.

The bank, which employs about 25,000 staff worldwide, including 5,000
in the UK, was founded in 1850 by three brothers.

'Extraordinary 24 hours'
Lehman Brothers said it intended to file for Chapter 11 bankruptcy
protection, which allows a company time to reorganise and devise a
plan to pay creditors over time.

It said that its broker-dealer division and asset management division
Neuberger Berman Holdings would not be included in the filing.

The accounting firm PriceWaterhouseCoop ers said the UK operations of
Lehman Brothers have been placed under administration, and the
business would be wound down in an orderly fashion.

Bank of America said it had agreed to buy investment bank Merrill
Lynch for $50bn (£28bn), in a deal that will create the world's
largest financial services company.

Three of the top five US investment banks have now fallen victim to
the credit crunch. Lehman and Merrill join Bear Stearns, which was
sold to JP Morgan for a knockdown price in March.

The BBC's business editor, Robert Peston, said that it had been Wall
Street's most extraordinary 24 hours since the late 1920s. He said
that Merrill's sale was almost as shocking as Lehman's demise.
"The global financial economy has never in recent years been tested
by quite such a combination of accidents and jolts to confidence," he
said.

Insurer in trouble
In addition to Lehman and Merrill Lynch, problems at AIG, once the
world's largest insurer, are also mounting.
Reeling from losses on its exposure to real estate, AIG has sought
$40bn from the Federal Reserve to shore up its finances, the New York
Times has reported.

To help prevent panic on financial markets, the Federal Reserve said
for the first time it will accept stocks owned by banks as collateral
for short-term cash loans, broadening its emergency lending programme.

Also 10 of the world's biggest banks on Sunday agreed to establish a
$70bn emergency fund, with any one of the bank's able to able to tap
up to a third of it should they face any liquidity problems.

Monday, 15 September 2008