Barclays Bails on Lehman Brothers

14 09 2008

Barclays pulled out of talks to purchase Lehman Brothers Sunday, even as some of Wall Street’s most powerful executives and financial regulators worked to resolve the fate of the troubled investment bank and crisis facing broader financial markets.

Following earlier reports that the British bank was a leading contender to buy the Wall Street firm, Barclays ended discussions as of midday Sunday, according to a source familiar with the situation.

The source said talks fell apart because Barclays (BCS) would have to guarantee or settle all of Lehman’s transactions, which would require the difficult task of organizing a vote by Barclays’ shareholders, the person said.

The company declined to comment on the matter.

Barclays, as well as Bank of America (BAC, Fortune 500), were said to be interested in buying Lehman’s good assets, such as its equities division, The Wall Street Journal reported Sunday.

The news came midway through talks on Sunday by top Wall Street officials and federal regulators over the fate of Lehman.

The participants, who started meeting Friday at the offices of the Federal Reserve Bank of New York, are discussing several scenarios, according to several published reports.

One solution is a so-called good bank/bad bank option that would divide Lehman (LEH, Fortune 500) into separate entities.

Another would involve others helping Lehman dissolve in an orderly way to try to stave off a cascade of problems at companies that do business with the firm. The possibility of an outright sale to another bank seemed to be fading, according to the Journal.

The stakes are high.

Lehman — one of the nation’s largest and oldest investment banks – has suffered a dramatic and rapid descent. Its shares, which sold for as high as $67 in the past 12 months, have plummeted 94% this year and now trade at $3.65.

In the past six months, the company has reported $6.7 billion in losses due largely to bad bets on real estate. At the same time, concern is growing about problems throughout the financial sector.

Investors are worried about whether savings and loan Washington Mutual (WM, Fortune 500) has enough capital to survive the credit crunch and insurance giant AIG (AIG, Fortune 500), faced with the threat of a downgrade to its credit ratings, is said to be considering selling off assets to raise capital. Both companies have also lost billions of dollars this year due to the subprime mortgage meltdown.




One response

5 05 2009

Well, I have to say, thank you for taking the time to post that article. It’s improtant that people understand what happened.

That was the worst weekend of my life. I was a VP in Convertible Distressed Securities at Lehman Brothers. My world turned upside down… like it did for so many brilliant people on Wall Street.

Since then, I teamed up with Patrick Robinson, #1 NYTimes bestselling author, and wrote a book about what really happened. It’s an easy read, too, so people who don’t even know what a bond is will probably learn more about finance reading this than a two year business course.

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