News & Current Affairs

September 14, 2008

Talks over sale of Lehman resume

Talks over sale of Lehman resume

Lehman Brothers headquarters

Lehman is the fourth largest US investment bank

Negotiations have restarted to find a buyer for troubled US investment bank Lehman Brothers, before a Sunday evening deadline.

Bank of America and UK lender Barclays are said to be the main candidates to buy all or part of the company.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

‘Rescue package’

The talks to sell Lehman are being led by senior officials from the US Treasury Department and the Federal Reserve.

Graph

It is understood that the US government wishes to arrange a bailout package under which other US investment banks – such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs – would contribute funds to a rescue deal which would see Lehman’s balance sheet cleaned up before its sale.

Although this is expected to cost the banks many millions, the alternative would likely be a sharp fall in their share prices if Lehman was to fail.

A number of sources report that US Treasury Secretary Henry Paulson is determined that no tax payers’ money will be used to help Lehman.

‘Difficult decision’

Former Federal Reserve boss Alan Greenspan said the US government faces “very difficult decisions” over Lehman if it cannot secure a rescue deal that does not involve public funds.

” “They [will then] have to make a very difficult decision as to whether or not they allow it to liquidate or they support it,” he said.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail-out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

Bad mortgage woes

Lehman could be sold off as one company, or else broken up into parts and sold separately.

While the firm got itself into financial difficulty due to extensive bad mortgage debts, its fund management business is in relatively good shape, analysts say.

Neither Bank of America or Barclays have made any comment.

Lehman’s shares lost 80% of their value last week, and its quarterly loss was the largest in its history.

The firm is the fourth-largest US investment bank.

Concerns over the fate of Lehman follow the bail-out last weekend of mortgage giants Freddie Mac and Fannie Mae.

The lenders were thrown into financial difficulty after the collapse of the US sub-prime mortgage market.

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