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Lehman Brothers Going Way of Bear Stearns

Published 09/12/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

Embattled investment bank Lehman Brothers is frantically scrambling to find potential buyers - in a scene mirroring the one that played out earlier this year when Bear Stearns collapsed. Possible buyers include the Bank of America and British bank Barclays.

However, potential buyers are looking to the Federal Reserve to guarantee at least part of Lehman Brothers troubled assets. Earlier this year, the federal government ensured the sale of Bear Stearns to J.P. Morgan Chase. It remains unclear whether the Fed is willing to back the Lehman Brothers sale, particularly because the Bush administration stepped in to take control of mortgage giants Fannie Mae and Freddie Mac just days ago.

On Thursday, shares of the Wall Street institution fell $3.03 from $4.22, leaving the stock down nearly 94 percent for the year. In February, stocks were selling at $66 per share. Just last year the company reported net profits of $4.1 billion. In the third quarter this year, the company recorded net losses of nearly $4 billion, completely wiping away last year’s gains.

The collapse of Lehman Brothers began in the summer of 2007 with the emergence of the credit crisis. Subprime mortgages began to take their toll on the financial industry. The bank’s aggressive expansion into the real estate market made the company the top underwriter of subprime mortgage securities. As the number of foreclosures began to rise, so did the financial losses for Lehman Brothers. The company and many of its investors believed they could weather the storm, but now it appears that its only option is to sell.

The investment bank employs nearly 25,000 people globally, and any sale will undoubtedly result in restructuring and job cuts.

Source The International Herald Tribune:

A day after Lehman Brothers sought to assure Wall Street that it could survive on its own, the beleaguered investment bank, urged on by U.S. government officials, bowed to mounting pressure on Thursday and put itself up for sale.

As confidence in Lehman continued to drain away on Thursday, the bank, one of the oldest names on Wall Street, reached out to several potential buyers, including Bank of America and Barclays, the big British bank, according to people briefed on the negotiations. Lehman hopes to strike a deal within days.

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