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WORLD> America
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Lehman rescue fails, BofA buys Merrill for $50 billion
(Agencies)
Updated: 2008-09-15 12:58 New York - A failed plan to rescue Lehman Brothers was followed Sunday by more seismic shocks from Wall Street, including a government-brokered takeover of Merrill Lynch by the Bank of America for $50 billion.
A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants, was to prevent a worldwide panic on stock and other financial exchanges. Ten banks -- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS -- each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets." The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The IS central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed. Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling. The stunning weekend developments took place as US voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates -- Republican John McCain and Democrat Barack Obama -- and members of Congress on the need for stricter financial regulation. Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama. "Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system." Lehman Brothers may be forced to seek an orderly unwinding of its businesses. All potential buyers walked away after the US Treasury refused to budge on its refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac. Expectations that the 158-year-old Lehman would survive dimmed after Barclays PLC withdrew its bid to buy the investment bank. Barclays and Bank of America were considered front-runners to buy Lehman, which is foundering under the weight of $60 billion in soured real estate holdings. Employees emerging Sunday night from Lehman's headquarters near the heart of Times Square carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name. TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square. Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews. People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?" Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the US, agreed to be acquired by Bank of America for $29 a share, according to a person briefed on the deal who spoke on condition of anonymity because the agreement had not yet been finalized. That's a premium to its closing price on Friday of $17.05, but only a fraction of its price of almost $100 a share early in 2007. |
