News & Current Affairs

September 15, 2008

Lehman set to go into insolvency

Lehman set to go into insolvency

Graph

Preparations are being made for Lehman Brothers, the fourth-largest investment bank in the US, to file for bankruptcy.

The two strongest potential buyers appear to have pulled out of talks to rescue Lehman – the latest victim of the American credit crisis.

If no new financing comes before Wall Street opens, it will have to seek “Chapter 11” bankruptcy protection.

This could result in a severe shock to the global financial system, as banks unwind their complex deals with Lehman.

Late on Sunday the US central bank, the Federal Reserve, announced new moves to ease access to emergency credit for struggling financial companies.

The Fed said the step – which broadens the types of securities financial institutions can use to obtain emergency loans – was designed to mitigate the potential risks and disruptions to markets.

In a related move, a consortium of 10 investment banks announced a $70bn (£39bn) loan program that troubled financial companies can use to help ease the credit shortage.

The banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide $7bn (£4bn) to the pool.

On Monday, Asian stock markets fell amid concerns over the fate of Lehman Brothers.

Singapore stocks dropped 2.26% in morning trading and shares in Taiwan fell 1.83%.

Markets in Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.

Lehman employs about 25,000 worldwide, including 5,000 in the UK.

Accountancy firm PWC has already been lined up to run the British operations of Lehman should the firm go into administration.

BBC business editor Robert Peston says UK bank Barclays’ decision to walk away from a Lehman deal was a huge setback for the effort to rescue the Lehman.

Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday.

Bad bank, good bank

The rescue effort for Lehman was being co-ordinated by the US Treasury and the New York Federal Reserve.

No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value
Peter Morici
University of Maryland

The US government had hoped to arrange a bailout under which other US investment banks would finance a “bad bank” that would hold the most “toxic” investments of Lehman in the property and mortgage market.

The “good bank” or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK’s Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.

However, it appears that this plan is falling apart.

“The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers’ money,” a banker close to the talks told the BBC, but added that US Treasury Secretary “Hank Paulson has made it clear he doesn’t want to do that”.

Hard choices

Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.

Instead, according to a report in the New York Times, Bank of America is in “advanced talks” to buy investment bank Merrill Lynch for more than $38bn.

HAVE YOUR SAY

It’s amazing that companies which charge high interest to cover risk still need to be bailed out by the taxpayer.

Jack, Canada

Like other US investment banks Merrill has suffered losses of tens of billions of dollars in the subprime crisis, and has seen its share price plummet during recent months.

“No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value,” said Peter Morici of the business school of the University of Maryland.

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.

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

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.

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August 6, 2008

Reptile ‘first-time’ dad at 111

Reptile ‘first-time’ dad at 111

Phillip Capper)

Tuatara are the last surviving reptiles of their kind

A rare 111-year-old New Zealand reptile is set to become a father, possibly for the first time.

Henry, a tuatara with prehistoric origins, had previously shown no interest in females during nearly 40 years in captivity, say keepers.

But his 80-year-old partner, Mildred, laid 12 eggs in mid-July, 11 of which are due to hatch in about six months.

Henry’s keepers have put his newfound vigour down to a recent operation to remove a tumour from his bottom.

Henry arrived at Southland Museum in the South Island city of Invercargill in 1970 and, his keepers say, soon became overweight and idle.

‘Raging hormones’

Museum curator Lindsay Hazley told AFP news agency: “He bit the tail off his previous female companion twice. But since the operation his hormones have been raging.”

It is not known whether Henry had ever mated in the wild.

Tuatara, which are only found in New Zealand, are sometimes referred to as “living fossils”.

He’s become a real Jack the Lad since he lost his virginity
Lindsay Hazley, curator

They are the only surviving members of a family of species which walked the Earth with the dinosaurs more than 200m years ago.

Mr Hazley said he was confident Henry would continue to make the most of his new lease of life and was already showing interest in the other two females in his enclosure, Lucy and Juliet.

“He’s definitely up for it, he’s become a real Jack the Lad since he lost his virginity,” he said.

But he warned it was probably too early to start further prenatal celebrations.

“With these guys, foreplay might take years,” he said. “One has to be patient.”

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