Late Sunday, it appeared that Lehman Brothers Holdings Inc., a 158-year-old Wall Street investment firm, will liquidate itself. Lehman has seen its stock slide 94 percent this year. Barclays PLC had considered taking over Lehman, but talks turned south over the weekend.
Meanwhile, late Sunday night, Bank of America agreed to take over Merrill Lynch,
according to The Wall Street Journal. There is a connection to the Lehman story here. After questions intensified last week about Lehman, some investors started looking at Merrill's health. Bank of America, at one point, was considered to be a suitor for Lehman but turned its sights on Merrill instead.
And a third company, AIG, is trying to raise cash and plans to sell off some of its assets to stay in business,
The Wall Street Journal reports.
What does all of this mean to you? For one thing, it means that Monday will likely be a wild day on Wall Street. All this comes a week after Fannie Mae and Freddie Mac were taken over by the federal government.
The New York Times struggles to put the story into context:
The mood could darken even further this week as several big Wall Street banks report what are expected to be grim quarterly results.
The problems the industry faces are myriad. Mortgage assets that both commercial and investment banks hold on their balance sheets continue to decline in value as potential buyers wait for prices to fall even further and sellers balk at prices being offered. At the same time, revenues from bread and butter Wall Street businesses like debt and equity underwriting and proprietary trading are sliding in a softening economy at home and abroad.
"I have not seen a quarter like this since 2001," said Meredith Whitney, analyst at Oppenheimer. "And the expense bases at the banks are still built for 2006-style revenues. So the clash of these two things is going to produce the kind of quarter we have not seen in some time."
Questions about Lehman Brothers have been brewing for a while,
the Times says in a summary of the company.
And while it is a blow to Wall Street, it is
not the end of the financial world, as the
Journal notes.
