A day after telling investors it had a plan to shore up its finances, the investment bank Lehman Brothers is looking for a buyer. The Treasury Department and the Federal Reserve are working with the Wall Street securities firm as it talks to potential buyers, including Bank of America, and a deal could be announced as early as this weekend.
Lehman Brothers lost a lot of money in the subprime mortgage crisis, having gotten involved with really complex mortgage-backed securities, and critics say it waited too long to address the problems, NPR's Jim Zarroli tells Steve Inskeep.
People lost confidence in the company and its stock price fell. Then, on Wednesday, the company announced a plan to try to shore up its finances, saying it was going to sell its investment management division, but the stock kept falling anyway.
"Now the only real option for Lehman's management is to put the entire company up for sale," Zarroli says.
But there are not a lot of companies that are able or willing to invest, "Mainly because Lehman's financial system is still quite murky," Zarroli says. The Korean Development Bank, a state-run institution, was considering investing in Lehman, but it pulled out, he says. "Goldman Sachs was supposed to be thinking about a deal, but then it came out and said 'No, not us.' "
There have been published reports that the most likely buyer is Bank of America, and Barclays Bank also was mentioned. But a lot of options are still on the table, Zarolli says.
"At the worst, Lehman Brothers could end up like Bear Stearns, subsumed into another big company," he says. "The shareholders have already lost a lot of money; shares of Lehman are down more than 90 percent in a year. In the case of Bear Stearns, shareholders ended up getting very little money, and that could certainly happen again."
The Treasury Department and the Federal Reserve engineered the deal for Bear Stearns, guaranteeing some of its debt as a way to induce JP Morgan Chase to buy the company. This time, Zarroli says, the government is assisting, monitoring the talks. But it isn't expected to put any federal money into the pot, he says, partly because since the Bear Stearns deal, there are now other ways for investment banks like Lehman to get money — they can borrow from the Federal Reserve's discount lending window.
"So the Federal Government itself doesn't have to play the same direct role it played before, and it won't," he says.
Zarroli says Lehman Brothers won't be the last firm to get in this much trouble over the mortgage mess.
"There are ongoing questions about all financial companies right now. It seems like one gets taken care of and then we move on to address problems somewhere else. It's like wildfires."
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