Bankruptcy represents the end of a 158-year old company that survived world wars and the collapse of Long-Term Capital Management but could not survive the global credit crunch. -- PHOTO: AGENCE FRANCE-PRESSE
WASHINGTON - TROUBLED investment giant Lehman Brothers sought bankruptcy protection on Monday after a frantic weekend of talks failed to find a buyer for the Wall Street giant ravaged by credit and real estate woes.
Lehman staffers clear desks on 'Black Monday'
LONDON - THE collapse of US investment giant Lehman Brothers sent shockwaves through London's financial district Monday, as the firm's staff cleared their desks and rivals voiced fears for their own jobs.
Some employees of the 158-year-old Wall Street institution wondered aloud whether their salaries would be paid at the end of the month, after Lehman - which has 4,000 employees in London - declared itself bankrupt.
In a surprise for some analysts, Lehman said it was seeking reorganisation under Chapter 11 of the bankruptcy code, a sign that it was still holding out hope for survival in some form.
The massive bankruptcy filing in US federal court in New York listed 639 billion dollars in assets at 613 billion (S$876.77 billion) in debts.
The news of Lehman's collapse prompted a bloodbath in global financial markets as traders flocked to safer Treasury bonds on fears of more dominoes falling in the banking system.
Lehman shares plunged 94 per cent to 20 cents after the news. Meanwhile American International Group, one of the world's biggest insurance companies, slid 43 per cent on fears it may too face a cash crunch and credit downgrade.
Merrill Lynch, another white-shoe Wall Street firm, managed to get a lifeline over the weekend with a deal to sell itself for 50 billion dollars to Bank of America. Merrill shares rose 23 per cent.
The news came after a weekend of crisis talks involving US Treasury and Federal Reserve officials failed to head off a collapse of Lehman Brothers which some say could send shockwaves through the global financial system.
'The remaining Wall Street firms are scrambling to match as many of Lehman's offsetting positions as possible to avoid a complete liquidation wipeout,' said Mr Ed Yardeni at Yardeni Research.
'Another potential calamity would be a fire sale of Lehman's distressed assets - such as commercial real estate. This would push prices even lower and potentially force other firms to mark down once again the value of their own holdings.'
Lehman Brothers said its filing was to exclude the broker-dealer operations, the company, said, adding that operations of the brokerage arm and its Neuberger Berman asset management division would continue to trade.
The statement said Lehman was 'exploring the sale of its broker-dealer operations and, as previously announced, is in advanced discussions with a number of potential purchasers to sell its investment management division'.
Lehman Brothers was the fourth-biggest US investment bank, dating back to 1850 with a staff of some 27,000 people but that counted for nought after writedowns of 13.8 billion dollars on the US subprime or higher risk home loan crisis.
Under steadily mounting pressure, especially after rival Bear Stearns was bailed out earlier in the year, Lehman Brothers tried to find a saviour too but a quarterly loss of 3.9 billion dollars and planned radical asset sales made buyers reluctant to step in without US government backing.
Yet some said that despite the turmoil, Lehman's failure may serve to purge the financial system of its troubles and set the stage for recovery.
'The darker view is that this will be the catalyst for a chain of failures or bankruptcies throughout the financial system, exacerbating the credit crunch and the recession,' said Mark Zandi, chief economist at Economy.com.
'A more upbeat perspective sees these events as a catharsis that will make the financial system more resilient. Bank of America's acquisition of Merrill Lynch testifies to this more optimistic view.' -- AFP
