Lehman Bros - deed

Sir Tokyo Sexwale · September 15, 2008

The fourth-largest investment bank in the US, Lehman Brothers, has filed for bankruptcy protection, amid a growing global financial crisis.

Lehman had incurred losses of billions of dollars in the US mortgage market.

The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.

Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street.

Its impact is being felt around the world:

* Stock markets and the US dollar have tumbled in reaction to Lehman's collapse, with banking shares hardest hit.

* Central banks have moved to reassure markets. The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of $39bn (£22bn; 28bn euros) into the financial system

* There are fears AIG, once the world's largest insurer, could also face collapse. It is taking steps to raise money amid reports it is seeking an emergency loan from the Fed.

* Bank of America's move to buy Merrill in a $50bn deal means that three of the top five US investment bank have fallen prey to the sub-prime crisis within six months.

Stock markets in Europe and Asia dropped sharply and the dollar tumbled against the yen, the euro and the Swiss franc as Lehman's failure raised fears about the strength of the global financial system.

The FTSE 100 index of leading UK shares was down 271 points, or 5%, at 5145.3 by midday.

Wall Street is also expected to open lower in what is likely to be a tense day of trading.

The Bank of England and the European Central Bank said they were monitoring developments and had pumped £5bn and $30bn respectively into money markets to help stabilise them.

The chance that Lehman Brothers could collapse increased sharply after the strongest potential buyers pulled out at the weekend.

Barclays and Bank of America had been in talks to rescue the bank but negotiations faltered when it became clear that the US Treasury was strongly opposed to using government money to help clinch a deal.

etc etc

In addition to Lehman and Merrill Lynch, problems at AIG, once the world's largest insurer, are also mounting.

Reeling from losses on its exposure to real estate, AIG has sought $40bn from the Federal Reserve to shore up its finances, the New York Times has reported.

To help prevent panic on financial markets, the Federal Reserve said for the first time it will accept stocks owned by banks as collateral for short-term cash loans, broadening its emergency lending programme.

Also 10 of the world's biggest banks on Sunday agreed to establish a $70bn emergency fund, with any one of the banks able to able to tap up to a third of it should they face any liquidity problems.

Edited October 9, 2008 by RP

Bailo · September 15, 2008

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