Published January 13, 2015
The outlook for Lehman Brothers' future seemed dim Sunday after Barclays PLC withdrew its bid to buy the beleaguered investment bank and government officials and Wall Street bankers remained at an impasse about a rescue plan.
The withdrawal of Barclays, which along with Bank of America Corp. was considered a front-runner to buy Lehman, demonstrated how complicated negotiations over Lehman's fate had become. As participants tried to cobble together a deal before markets opened on Monday, calls by banks for the federal government's financial assistance were flatly denied.
The talks were aimed at selling Lehman in whole or in part. The sticking point was the potential buyers' insistence that the Bush administration offer the kind of help it did in brokering the buyout of Bear Stearns Cos. last March, when the government agreed to a $29 billion loan to buyer JPMorgan Chase & Co. from the Federal Reserve. But Treasury Secretary Henry Paulson says the government will not help close a Lehman deal.
Lehman declined to comment on the talks.
If no deal were reached, it raised the specter of a bankruptcy and liquidation of the 158-year old investment bank. Bankers and investment banking officials briefed on the talks described them as being both complicated and fluid, and that there was still hope that an agreement can be brokered or that new bidders might emerge. They spoke on condition of anonymity because talks were ongoing.
But there were signs that Lehman Brothers Holdings Inc. might be edging closer to a bankruptcy filing, with several reports that it has hired Weil, Gotshal & Manges, the law firm that handled the collapse of investment firm Drexel Burnham Lambert in 1990.
That could be an indication that Bank of America was also giving up; the company did not return phone calls seeking comment.
Moreover, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman — but that those trades would be voided if no filing occurs before midnight.
Barclays, Britain's third-largest bank, backed out of talks on Sunday after emerging during the morning as a front-runner to take over Lehman's assets, according to a person inside the U.K. bank who spoke on condition of anonymity, in keeping with company policy. The person, who had knowledge of the talks, said the decision was "very unlikely" to change. He said Lehman was attractive but did not meet what he described as Barclay's stringent requirements.
Several private-equity firms were also believed to be interested in Lehman's assets. Bankers and officials with direct knowledge of the discussions described the talks as complicated Sunday morning.
Top officials from the Federal Reserve and the Treasury Department and executives from several Wall Street banks were huddled at the New York Fed's downtown Manhattan headquarters for a third day seeking a solution to Lehman's financial crisis. Failure could prompt skittish investors to unload shares of financial companies, a contagion that might affect stock markets around the world when they reopen Monday.