WASHINGTON: Embattled investment giant Lehman Brothers faced a weekend of scrambling for a buyer amid its freefalling share price which threatened to sink the Wall Street bank, analysts said.
Some reports and analysts said Lehman needed to find a buyer or risk a failure that ripples through financial markets.
“Lehman needs a bid. So does the market,” said Robert Brusca at FAO Economics.
“The market needs for Lehman to be sold. Lehman’s counterparties have been hanging in there.... No one likes the notion that there is no bid for Lehman’s real estate portfolio at any price. And the price has gotten very low.”
The Wall Street Journal reported that Bank of America was a leading candidate for a takeover.
The Financial Times said that in addition to Bank of America, private equity firm JC Flowers & Co. and China Investment Co., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman. British-based Barclays is also interested, the FT said. “The evidence is pretty clear that they are searching frantically for a buyer, and the most prevalent name being tossed around is Bank of America,” said Kevin Giddis, analyst at Morgan Keegan.
“The speculation is that a sale could happen today or as we have gotten used to, over the weekend. They are looking for a white knight, but one may not emerge,” Giddis said.
“If they don’t find one, we might just test the ‘too big to fail’ theory once again.” Brad Sorensen of Charles Schwab & Co. said the main stumbling block appears to be that a potential buyer would be seeking the same credit guarantees given to J.P. Morgan Chase in the 11th-hour deal to buy Wall Street rival Bear Stearns in March.
“There are reports that the Treasury Department and the Federal Reserve are trying to help bring appropriate parties together but are likely resistant to backing any deal with government money or guarantees,” Sorensen said.
“However, a precedent of sorts has been set with the backing of $29 billion in debt by the government in the deal between J.P. Morgan and Bear Stearns. Therefore, any potential buyer of Lehman may balk at proceeding without at least some assistance from federal authorities.”
White House spokesman Tony Fratto said the US Treasury “is closely monitoring the markets and they stay in contact with market participants,” but offered no details.
“The central bank’s rumored involvement will again raise concerns about moral hazard,” said Ryan Sweet at Economy.com.
“Many view the Bear Stearns takeover and the recent seizure of mortgage giants Fannie Mae and Freddie Mac as bailouts.
That said, a failure of any major financial institution will send borrowing costs higher and hurt business and investor sentiment,” Sweet said.
“The timing is particularly bad, as banks need cash at the end of a year to balance their books. Higher borrowing costs could put many in a difficult, if not fatal, squeeze,” he added.
“It’s a tough one because the (financial market) interactions are so complex you just don’t know the consequences,” said Cary Leahey, senior economist at Decision Economics. “Is failure an option? Part of capitalism is failure... but are the repercussions so great? You can have everybody with their hat in their hand seeking a bailout. It’ll be the auto industry and then the citrus growers,” Leahy said.
Shares in Lehman fell 13.5 percent to $3.65 on the heels of a 41.7 percent slide Thursday.
The latest troubles for Lehman come days after the US government took over mortgage finance giants Fannie Mae and Freddie Mac in an effort to stem a global credit crisis.
The financial firms have been roiled by the horrific slump in the US real estate market that has battered the banking firms that financed market speculation.
