Bloody Sunday: LEH Going Bust

By Natasha Gural, Editor

By Natasha Gural, Editor

Lehman Brothers teetered on the brink of bankruptcy after failing to find a suitor, while consumer banking behemoth Bank of America reportedly scooped up investment banking giant Merrill Lynch on Sunday.

Lehman Brothers Holdings Inc. on Monday filed a voluntary petition for bankruptcy in the U.S. Bankruptcy Court of the Southern District of New York.

"LBHI is 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 (“IMD”). LBHI intends to pursue those discussions as well as a number of other strategic alternatives," the company said in a statement Sunday. "Neuberger Berman, LLC and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of its parent, and its portfolio management, research and operating functions remain intact. In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and are not subject to the claims of Lehman Brothers Holdings' creditors."

The decision followed a meeting earlier Sunday of Wall Street executives at the New York Fed to devise a bailout plan, as Barclays Plc, the third-largest bank in the U.K., and BofA both abandoned potential plans to takeover Lehman.

Bank of America, the nation's largest consumer bank, agreed Sunday to buy Merrill Lynch, the third-largest securities firm in the U.S. for about $44 billion, according to published reports.

Merrill's stock sank after Oppenheimer & Co. analyst Meredith Whitney forecast a $6.87 billion third-quarter loss, fueling rumors that it would go down with Lehman in the wake of Bear Stearn's collapse, signalling the start of major consolidation for the banking sector.

Despite Lehman's bankruptcy filing Monday, CME Group, the Options Clearning Corp. and IntercontinentalExchange on Monday confirmed the bank continues to meet obligations to the firms.

OCC said it “understands that LBHI's U.S. broker dealer subsidiaries have not filed for bankruptcy and continue to operate as broker dealers.”

The clearing corporation said Lehman Brothers and Neuberger Berman LLC, the firm's asset management subsidiary, remain “in good standing” as OCC clearing members.

ICE said Lehman “continues to meet all obligations” while CME Group “continues to operate as normal.” 

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Posted on Sept. 14, 2008