The credit crisis storm brewing on Wall Street for the past year strengthened dramatically on Sunday, with Lehman Brothers unable to find a buyer and seemingly on the brink of collapse.
Meanwhile, Merrill Lynch, whose stock was hammered last week amid growing concerns over its own exposure to toxic mortgages, was reportedly in talks to be acquired by
Bank of America.
Topping it off, American International Group, the giant insurer, was planning to reveal a dramatic restructuring plan that would involve shedding billions in assets.
The repercussions of these events would redraw the map on Wall Street and dramatically reshape New York’s financial services industry in ways that will be grappled with for months and years to come.
The news was most dire at Lehman, a proud name that traces its roots on Wall Street to the 1850s, making it older than
Goldman Sachs or any other major brokerage firm.
Talks with
Bank of America or
Barclays to acquire the ailing investment bank fell apart on Sunday afternoon, apparently because those two institutions wanted government guarantees that were not forthcoming to protect them against losses in Lehman’s mortgage portfolio.
While another buyer could yet materialize, many Wall Street firms called their traders back to work on Sunday afternoon to try to unwind their complex derivatives transactions with Lehman.
If no buyer steps in soon, the next step for Lehman appears to be bankruptcy and liquidation.
It would be by far the largest such failure in Wall Street history, exponentially larger than the 1990 collapse of Drexel Burnham Lambert.
Most, if not all, of Lehman’s 25,000 employees would figure to lose their jobs in such a scenario. At this point, the focus seems to be on liquidating Lehman’s assets slowly to minimize disrupting an already shaken market.
Bank of America, after deciding it wanted no part of Lehman, now has turned its eyes to Merrill Lynch.
The Wall Street Journal and New York Times are both reporting the bank is in talks to acquire Wall Street’s most famous bull, which has resisted numerous attempts by banks to acquire it since its founding in 1914.
Merrill has been socked with tens of billions in losses during the credit crisis, though its sales force of about 17,000 retail brokers remains a valuable asset.
Finally,
AIG, which has also suffered tens of billions of mortgage-related losses, is preparing to sell its enormous aircraft-leasing business, according to the Wall Street Journal, in addition to some insurance-related assets.
