On Sunday, no rest for Wall Street. And the dominos fall.
Brokers are pouring into their offices as a special trading session is called for credit default swaps. The frenzied activity is due to the widespread belief that Lehman Brothers will declare bankruptcy, after Barclays and Bank of America each dropped deal talks.
Charlie Gasparino and Steve Liesman report that other Wall Street firms have also balked at the idea of buttressing Lehman because of the enormous cost of buying the bad debt, the lack of support from the Federal Reserve — and the disturbing notion that they might be called upon again to rescue other desperate firms.
Later in the day, Bank of America says it has agreed to buy Merrill Lynch in an all-stock deal worth $50 billion, which gives it the world's largest retail brokerage.
Bank of America, which recently acquired troubled mortgage lender Countrywide Financial, looks to be benefiting from Wall Street's application of the survival-of-the-fittest law of nature.
Merrill came under pressure to find a friendly merger partner after its liquidity began "evaporating" Friday, according to people inside the firm. Merrill is expecting huge job losses with the merger, though the brokerage division will remain intact.
What You Were Reading:
- Lehman Brothers Files For Bankruptcy
- AIG Set to Announce Asset Sale or Capital Injection
- Slideshow: Bank Failures in 2008
Then, the hammer falls: Lehman Brothers files for chapter 11 bankruptcy protection Sunday night.
The 158-year-old Lehman is the biggest casualty of the global credit crisis, surpassing WorldCom as the largest company in U.S. history in file for chapter 11. It has $639 billion assets, but billions more in liability.
Lehman also has the dubious honor of being the biggest investment bank to collapse since 1990, when Drexel Burnham Lambert went under.
Lehman, however, says it is in advanced talks to sell its investment management business, including Neuberger Berman and other units which were not included in the Chapter 11 filing.
But the tumultuous weekend is not over yet: Mary Thompson and David Faber report that AIG is set to announce an asset sale or capital injection either late tonight, or sometime tomorrow (Monday, Sept. 15).
The insurance giant is pursuing a three-part plan to raise $50 billion in liquidity. AIG is trying to raise billions from private equity firms, and is also in talks with Berkshire Hathaway's Warren Buffett.
What the Experts Were Saying:
David Faber and Charlie Gasparino analyze the ramifications of Bank of America's $44 billion purchase of Merrill Lynch.
Charlie Gasparino and Steve Liesman discuss the turbulent events surounding Lehman and AIG.