Lehman Brothers Said to Prepare Bankruptcy as Buyers Withdraw

September 14, 2008 by · Leave a Comment
Filed under: Industry News 

Tomorrow morning (Monday) will be very telling on is to come. This announcement could have major implications going forward. The first thing that comes to mind is what exposure is our their for CDS against Lehman debt or how much of this paper are they the counter-party and if there is major exposure on either or both, what position does that put in companies in when they file bankruptcy protection?

My gut feeling is this is going to send shock-waves throughout the markets. Gold has already jumped 2 1/2% in the Asian market at the time of this writing on a Sunday night.

Release:

Lehman Brothers Holdings Inc. prepared to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.

Lehman and its lawyers are getting ready to file the documents for bankruptcy protection tonight, said a person with direct knowledge of the firm’s plans. A final decision hasn’t been made, though none of the other options being considered appeared likely, the person said, declining to be identified because the discussions haven’t been made public.

Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn’t obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman’s assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks. Banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible bankruptcy filing tonight.

The U.S. Treasury and the Federal Reserve have struggled for three days to prevent the investment bank from failing before markets open tomorrow, people familiar with the situation said. With the two most serious bidders out of the picture, Lehman’s options are few.

“The best case is that the Fed offers a 48-hour standstill by backing Lehman’s liquidity directly to win time for other bidders to come forth or the previously interested parties to reconsider,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “The worst case is bankruptcy, and Lehman goes down the tube.”

Lehman spokesman Mark Lane declined to comment.

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