Lehman Brothers files for bankruptcy

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Tuesday, September 16, 2008

Lehman Brothers’ headquarters in New York City.
Image: David Shankbone.

Lehman Brothers, a major American investment banker, has filed paperwork for bankruptcy. It would be the largest collapse of an investment firm in 18 years.

Lehman attempted to find a buyer over the weekend but it met with no success. The last remaining bidder, Barclays PLC bank pulled out Sunday afternoon. Barclays, a United Kingdom-based bank, had become the sole bidder after a consortium led by Bank of America pulled out early Sunday morning citing that it would need government support before considering a bid. The support would consist of backing bad debts owed by Lehman. Barclays cited a similar reason for withdrawing its bid.

As of Monday morning, no buyer has come through to take control of the firm. As a result, the firm filed for bankruptcy protection.

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The main sticking point for potential buyers appears to be the unwillingness for the U.S. government to provide financial support. Hank Paulson, Treasury secretary, has repeatedly said that no government money will be given to Lehman or used in any takeover the firm. Government money was used in the takeover of Bear Stearns by JPMorgan Chase in March of this year. Bear Stearns suffered similar problems as Lehman.

A spokesmen for Barclays told the Financial Times, "the proposed transaction required a guarantee for the trading operations of Lehman Brothers that was potentially open-ended, and we were not willing to provide that guarantee."

Paulson, along with other government officials, proposed a solution that Lehman would get split into two separate entities. However, this proposal has been discarded by many of Wall Street banks.

Members of the G8 have reportedly been keep abreast of the situation by U.S. government.

The firm, which has over 25,000 staffers, has suffered bad results due to the subprime mortgage crisis.



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