- The Washington Times - Sunday, September 14, 2008


NEW YORK (AP) — Government officials and top Wall Street bankers continued talks Sunday in a harried effort to sell Lehman Brothers Holdings Inc. and avoid a collapse of the beleaguered investment bank that could severely disrupt global markets.

Barclays PLC, Britain’s third-largest bank, backed out of talks on Sunday after emerging during the morning as a front-runner to take over Lehman’s assets, according to a person inside the United Kingdom bank who spoke on condition of anonymity, in keeping with company policy. The person, who had knowledge of the talks, said the decision was “very unlikely” to change. He said Lehman was attractive but did not meet what he described as Barclay’s stringent requirements.

That could leave Bank of America Corp., the nation’s biggest retail bank, and several private-equity firms among the narrowed group of bidders still at the table. Bankers and officials with direct knowledge of the discussions said they remained in complicated talks Sunday morning. They spoke on condition of anonymity because talks were ongoing.

Top officials from the Federal Reserve and the Treasury Department and executives from several Wall Street banks were huddled at the New York Fed’s downtown Manhattan headquarters for a third day seeking a solution to Lehman’s financial crisis. Failure could prompt skittish investors to unload shares of financial companies, a contagion that might affect stock markets around the world when they reopen Monday. Asian markets will begin trading Sunday night Eastern time.

The discussions were said to be tense as all sides try to hash out a plan to sell Lehman in whole or in pieces to a number of buyers. Bank of America, the nation’s largest retail bank, and several private-equity firms are also among the bidders to buy Lehman’s assets, officials briefed on the talks said.

There were conflicting reports Sunday about how a deal could be structured and when an announcement might come.

Officials with knowledge of the talks said major banks were balking at paying to polish up Lehman’s balance sheet so a suitor could buy a financially clean firm. The Fed and Treasury have said they won’t use taxpayer money to rescue the bad mortgage-related assets that crippled the 158-year-old Lehman.

A spokesman for Lehman declined to comment. A spokesman for BofA could not immediately be reached for comment.

The Wall Street banks being asked to pitch in were angling for the government to provide some money, as it did when it helped JPMorgan Chase & Co. buy Bear Stearns in March.

Treasury Secretary Henry Paulson; Timothy Geithner, president of the New York Fed; and Securities and Exchange Commission Chairman Christopher Cox were among those taking part in the meetings. Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn’t in attendance.

Citigroup Inc.’s Vikram Pandit, JPMorgan Chase & Co.’s Jamie Dimon, Morgan Stanley’s John Mack, Goldman Sachs Group Inc.’s Lloyd Blankfein and Merrill Lynch & Co.’s John Thain were among the chief executives at the meeting.

The bankers and government officials were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks.

AIG, the world’s largest insurer, and WaMu, the nation’s biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday.

Former Federal Reserve Chairman Alan Greenspan said Sunday the government faces tough choices as it tries to help arrange a rescue of Lehman Brothers without using public money. He cautioned that more major U.S. financial institutions may fail in the future, but the government should not protect them all.

Greenspan said the housing and credit crisis, which has caused global banks to write down more than $300 billion in risky investments and loans, “is in the process of outstripping anything I’ve seen” and has yet to run its course. It will continue to be a corrosive force until the price of homes in the United States stabilizes,” perhaps next year, he said.

See related story: Greenspan: Tough decisions await in Lehman case

Lehman put itself on the block earlier last week. Bad bets on real-estate holdings — which have factored into bank failures and caused other financial companies to founder — have thrust the firm in peril. It has been dogged by growing doubts about whether other financial institutions would continue to do business with it.

Richard S. Fuld, Lehman’s longtime CEO, pitched a plan to shareholders Wednesday that would spin off Lehman’s soured real estate holdings into a separately traded company. He would then raise cash by selling a majority stake in the company’s unit that manages money for people and institutions. That division includes asset manager Neuberger Berman.

Government officials want to avoid a Bear Stearns-like bailout; the Fed in March agreed to provide a loan of nearly $29 billion as part of JPMorgan Chase & Co.’s takeover of the firm. Unlike Bear, Lehman can go directly to the Fed to draw emergency loans if it needs a quick source of ready cash. In recent weeks, though, there’s been no indication that Lehman has done so.

Bear’s sudden meltdown led the Fed to engage in its broadest use of lending powers since the 1930s. Fearful that other companies could be in jeopardy, the Fed temporarily opened its emergency lending program to investment firms, a privilege that for years was granted only to commercial banks, which are subject to tighter regulation.

Those actions — along with the Bush administration’s takeover of mortgage giants Fannie Mae and Freddie Mac last week — have spurred concerns that taxpayers could be on the hook for billions of dollars and companies will be encouraged to take on extra risks because they believe the government will come to their aid.

Associated Press writer Rafael Satter contributed to this story from London.

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