Discussion in 'Trading' started by gwac, Sep 14, 2008.

  1. gwac


    Leh gone but in an orderly fashion... Mer gone to BofA...AIG trying to solve its problems also this weekend. Seems like everything is sorting itself out....LOL

    Lehman Brothers Plans to File for Bankruptcy Shortly
    Topics:Henry Paulson | Banking
    Sectors:Financial Services | Banks
    Companies:Morgan Stanley | JPMorgan Chase and Co | Lehman Brothers Holdings IncBy | 14 Sep 2008 | 07:35 PM ET Font size: CNBC has confirmed press reports that Lehman Brothers is likely to file for bankruptcy protection as soon as Sunday evening.

    Among details to be worked out: the accounting treatment for certain derivatives and repurchase positions, an area not currently covered by bankruptcy laws; and the orderly netting out of a variety of securities positions to which Lehman Brothers is contractually obligated.

    Federal authorities are expected to be involved in the orderly disposition of Lehman assets if such a filing occurs. Sources knowledgeable about the weekend deliberations tell CNBC that without some government participation in the process, a bankruptcy filing by Lehman Brothers would cause major disruptions in the financial system.

    Officials at the Federal Reserve and U.S. Treasury are taking steps to mitigate risk to the system and assure the orderly functioning of the markets tomorrow.

    According to the New York Times, Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings.

    A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government, the New York Times says.

    It is not clear whether the government would appoint a trustee to supervise Lehman’s liquidation, or how big the financial backstop would be.

    Lehman's fate seem sealed after Barclays walked away from a deal to purchase the troubled Wall Street investment bank — brokers Sunday afternoon were streaming into their offices and a special trading session for credit default swaps was called.

    Bank of America, Merrill Talk Merger

    CNBC also has learned that Bank of America [BAC 33.74 0.68 (+2.06%) ] has pulled out of negotiations to buy Lehman Brothers and has set its sights on Merrill Lynch. Merrill plans an internal (employee) announcement for 8 - 9 a.m. ET. to announce the possible merger with Bank of America.

    The merger talks continue as this news breaks. Inside Merrill sources say price the merger price could be between $25 to $30 per Merrill share. But the situation is extremely fluid and this could easily change.

    Pressure to find a merger partner came after Merrill liquidity started to "evaporating" on Friday. Merrill is worried about a sharp decline in share price on Monday, according to people inside the firm.

    Merrill is expecting huge job losses -- the brokerage division will stay intact, but there will be large-scale reductions in workforce. A senior Merrill official was quoted as saying, "It's over."

    "Right now all the firms are preparing for an orderly bankruptcy," said one Wall Street executive involved in the negotiations.

    Bank of America also has offered to take the other side of Lehman’s swap trades — essentially insurance that Lehman had provided for the bonds of other companies.

    Wall Street Prepares for Grim Monday

    Meanwhile, the big Wall Street firms are balking at a plan to buy the bad debt because they say they don't have the money and are worried that they may be called on again to bail out another firm.

    For that reason, Wall Street traders headed back to their offices this afternoon to prepare for the market impact of a pre-package bankruptcy and the unwinding of Lehman's balance sheet of approximately $700 million. One Wall Street trader involved in the discussions with officials from the Federal Reserve said every firm had determined their exposure to Lehman by this morning, and were preparing for some Fed help in unwinding the trades.

    But officials from the Federal Reserve said they won't be involved in any such unwind — they told the Wall Street firms to work among themselves to determine how best to settle trades with Lehman.

    The Associated Press reports, citing a "top investment banking official", that US and foreign banks plan to spend up to $50 billion to create a fund to assist troubled financial companies. The AP also said officials at the U.S. Treasury and Federal Reserve are expected to say they are ready to make additional loans.

    The Fall of Lehman Brothers

    Current DateTime: 04:36:07 14 Sep 2008
    LinksList Documentid: 26707997
    Wall Street Prepares for Worst
    AIG Pursues Liquidity Plan
    Lehman CEO's Star Fades
    Farrell: Parsing the Faltering Financials
    WaMu Being Eyed by Banks
    Merrill, BofA in Merger Talks

    Such a move adds another level of uncertainty to the markets as it braces for the growing possibility that Lehman will file for bankruptcy. Many traders expect massive selling pressure if Lehman does declare bankruptcy beginning when the Asian markets open.

    Still others can't believe there won't be a last minute compromise.

    "I can't believe people won't give a bit," said one trader involved in the negotiation. "I don't see why this is happening."

    One person with knowledge of Sunday's deliberation's called it "a big game of chicken" with all sides digging in their heels.

    Meanwhile, officials at one of Lehman's most highly prized assets, asset manager Neuberger Berman, were hoping to find out their fate this afternoon, but were told to simply stay by their e-mails for an announcement that may or may not come.

    Bank of America

    Bank of America sent a note to derivatives traders Sunday saying "Banks, brokers started netting Lehman trades from 2 p.m. today … trades netted are contingent on Lehman bankruptcy by midnight." The note continued "If no Lehman bankruptcy, netting of trades to be cancelled," meaning Bank of America's assumption of Lehman’s side of trades would end.

    "It’s a way of lessening the pressure before Wall Street opens up tomorrow. The more they can reduce the total brokerage book for Lehman, the less heart-ache there will be for counterparties if Lehman files," Carlos Mendez, senior managing director of ICP Capital in New York.

    The International Swaps and Derivatives Association called a special session from 2 p.m. to 4 p.m. but traders said that was purely symbolic. They intended to trade through the night.

    The cost of insuring the bonds of investment bankers blew out in trading on Sunday.

    Barclays Pulls Out

    Earlier in the day, the United Kingdom's Barclays Bank pulled out of talks to buy Lehman. Barclays, which was considered the lead candidate to buy Lehman, reportedly was unable to agree on credit guarantees to shield them from potential losses.

    Top Wall Street executives arrived Sunday morning for another round of talks to resolve the Lehman crisis, and sources said the group continued to work on how to handle the possibility of a deal not getting done before Monday.

    By mid-morning, Federal Reserve Chairman Ben Bernanke was said to have been involved in several conversations by phone from Washington with officials meeting at the New York Federal Reserve. In addition, Bernanke was said to have made several calls already to foreign central bankers who are monitoring the proceedings carefully.

    New York Federal Reserve President Tim Geithner and Treasury Secretary Hank Paulson were already at the New York Fed by the time executives from top Wall Street firms began to arrive.

    Work went on through the night on a deal drafted Saturday to have a consortium of banks backstop Lehman's bad assets and sell off the rest of the bank to Bank of America and Barclays. But sources said key parts of the deal remained controversial Sunday morning. As reported, the banks backstopping the bad loans were said to be balking at the amount of capital required of the banks and the sense that they were supporting a good deal for Barclays and Bank of America.

    The larger group has been broken up into several working groups to devise responses to different possible outcomes. Among those, how markets can prepare for the possibility that Lehman might not find a buyer before Monday.