FYI | Sep 14 2008
By Rudi Filapek-Vandyck
There are still 24 hours left for US authorities and financial institutions to come up with a “solution” for the country’s troubled fourth largest investment banker, Lehman Brothers. Initial indications are not looking positive, however, with the Wall Street Journal reporting all day talks on Saturday (US time) have ended without anything concrete or tangible, let alone a watertight “solution” for the Lehman situation.
According to the newspaper, talks on Saturday showed it had become “increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute”. Talks are expected to continue on Sunday. It can be expected that another day of intense discussions about the fate of Lehman Bros without the generation of a palpable solution will be taken badly when financial markets open on Monday.
It’s probably no surprise then the Wall Street Journal reports “Officials from the New York Fed and various banks were expected to continue working through the night”.
The newspaper cites two main problems that need to be overcome. Firstly, only a handful of banks seem to be in a position to provide enough funding for a savings plan for Lehman. Secondly, those banks that could potentially put some rescue money on the table aren’t keen to see a big rival walk away with valuable assets while only paying a pittance for the privilege of becoming the world’s last minute hero.
The option of US governmental support in any deal also remains a hot potato.
Among banks believed to be interested in participating in a rescue deal for Lehman are Barclays and Bank of America.
While it remains yet to be seen whether a solution can be found and agreed upon by Monday, the newspaper suggests authorities are taking no chances with “a second group at the New York Fed [is] focusing on the possibility that there might be no alternative to liquidating Lehman and winding down its operations in an orderly fashion”.
The eyes of the world are watching now…
(That last quote is from Steven Biko by Peter Gabriel. Hence completely out of context, but nevertheless very much in synch with today’s reality I believe)
