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New York: Lehman Brothers Holdings Inc., once the fourth-largest US investment bank, will file for bankruptcy after potential buyers abandoned talks and the US government declined to fund a takeover of the crippled firm.
Lehman, last year's biggest underwriters of mortgage-backed securities, plans to file a Chapter 11 petition in the US Bankruptcy Court for the Southern District of New York, the firm in a statement on Monday. The filing will be by the holding company and won't include any of its subsidiaries, Lehman said.
Barclays Plc, which had emerged as a leading candidate to acquire Lehman, pulled out first on Sunday, 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 Corp. withdrew about three hours later, before announcing that it would acquire Merrill Lynch & Co. Banks and brokers sought to consolidate trades linked to Lehman to minimize the impact of a bankruptcy filing.
“In the short term, there will regrettably be losers including creditors, investors and the capital markets,'' said Martin J. Bienenstock, a New York bankruptcy lawyer representing several Lehman creditors.
Chief Executive Officer Richard Fuld, who joined Lehman in 1969 and is the longest-serving CEO on Wall Street, attempted to shore up the firm's finances in the second quarter by raising $14 billion of capital, selling $147 billion of assets, increasing cash holdings and reducing reliance on short-term funding to create a buffer against a bank run.
Historic Loss
Lehman last week reported the biggest loss in its history and said it planned to sell a majority stake in its asset- management unit, spin off real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence.
The efforts failed to stem speculation that the firm's mortgage holdings would lead to more losses. Lehman fell 77 per cent last week in New York trading.
The US Treasury and the Federal Reserve negotiated with Wall Street executives for the past three days in New York try to strike an agreement that would prevent the investment bank from failing before markets open on Monday. Treasury Secretary Henry Paulson indicated that he didn't want to use US taxpayer funds to ease a sale of the company.
Fuld, 62, is exploring the sale of its broker-dealer operation and continues to hold talks on the sale of its asset- management unit, including fund manager Neuberger Berman, the company said today in the statement.
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