Lehman Brothers Bankruptcy Imminent?

Who would have ever thought that Lehman Brothers would be on the verge of declaring bankruptcy?

This is looking like a very real possibility on Sunday night, as an emergency meeting between Federal Reserve officials and major financial institutions has not yielded any sort of a solution.

The Fed has said that no public money will be used to bail out Lehman Brothers. Firms such as the Bank of America and Barclays have entertained the possibility of taking over Lehman Brothers, but neither have secured a deal as of yet. Both firms (Bank of America and Barclays) have publicly "pulled out of talks" to do a deal with Lehman Brothers, but many believe that this is just posturing in order to secure the strongest deal possible. Neither firm will absorb Lehman Brothers in its current state - both are interested in acquiring certain assets and avoiding others.

Another possibility is that a number of the major firms will join together to acquire Lehman Brothers. That way, the potential losses will be shared by a number of different firms, and the potential profits will be split amongst them as well. The problem is that many of these firms have written down billions of dollars in losses already, and aren't too keen on the prospect of absorbing any more.

The failure of Lehman Brothers would have a dramatic impact on other firms, as well as the overall economy. Merrill Lynch and the American International Group are both wilting under market pressure, and it is believed that a Lehman Brothers bankruptcy would bring both of these firms closer to the precipice. You need to only look at the price action in both of these firms over the past week to know that quickly sliding into the darkness, possibly never to return.

Alan Greenspan was right - this is absolutely the worst financial crisis that the United States has gone through since the Great Depression.

Apparently we will know by midnight tonight whether or not the plug is going to be pulled on Lehman Brothers, or if a last-second deal will be struck to take over the company. If Lehman Brothers does indeed go bankrupt, then the implications on other companies (and the market and economy in general) will be vast and far-reaching. These are interesting times indeed.

Filed under: General Market News | Stock Market Scandals