- The Washington Times - Saturday, September 13, 2008

NEW YORK | Lehman Brothers‘ shares sank further on Friday as top executives raced to put a sale of the beleaguered investment bank in place and Washington indicated that taxpayers would not foot the bill.

Confidence has waned that Lehman Brothers Holdings Inc. will emerge from the financial crisis as an independent franchise, and the No. 4 U.S. investment bank is scouring Wall Street for a financial lifeline. Executives worked feverishly in the past two days to find someone willing to buy all or part of the company, bankers and industry executives close to the situation said.

Lehman shares fell 57 cents, or 13.5 percent, to close at $3.65. The stock is down nearly 95 percent from its 52-week high of $67.73 one year ago.

Bank of America Corp., Japan’s Nomura Securities, France’s BNP Paribas, Deutsche Bank AG and Britain’s Barclay’s PLC have been mentioned this week as potential buyers. All have declined to comment.

Treasury Secretary Henry M. Paulson Jr. is against any use of government money in whatever deal comes together for Lehman, a person familiar with his thinking said Friday.

The person, who spoke on the condition of anonymity given the sensitivity of negotiations, said Mr. Paulson, who played a major role in engineering the government-back Bear Stearns bailout, believes the Lehman situation is different in two critical aspects.

Financial markets have been aware of Lehman’s troubles for a long time and have had time to prepare. And the Federal Reserve is now allowing investment banks to borrow directly from the Fed just as commercial banks can do. It opened the borrowing spigot for investment banks after the near collapse of Bear Stearns in March.

“Given those two things, he is adamant that there be no government money in the resolution of this situation,” the person said.

Taxpayer money may already be on the line for the government’s takeover of mortgage giants Fannie Mae and Freddie Mac and the government-brokered sale of investment bank Bear Stearns to JPMorgan Chase & Co. in March. The Federal Reserve put up $29 billion in loans to help that deal.

The final cost of both actions is impossible to know. It will depend on how much the U.S. economy weakens and how much the housing market sinks. One guess was made earlier this year by the Congressional Budget Office, which estimated a rescue of Fannie and Freddie could cost taxpayers $25 billion.

Some economists believe the government’s actions ultimately could be more costly to taxpayers than the savings and loan crisis, when the failure of more than 700 S&Ls; in the 1980s and early 1990s cost taxpayers around $125 billion.

Without the government’s financial backing, there’s more pressure on Lehman Chief Executive Officer Richard Fuld, who joined the company in 1961 as a college student and now serves as Wall Street’s longest-serving CEO. He has tenaciously resisted putting the company up for sale, but finally relented after a free-fall in its stock price and growing doubts about its survival, according to bankers and industry executives.

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