Lehman Brothers Holdings Inc has been forced to file for bankruptcy after spending a weekend trying to persuade either Barclays Plc or Bank of America, that the biggest underwriter of mortgage-backed securities still has some worth. He failed.
The downfall of the fourth largest US investment bank is causing further turmoil in the international markets on this replicate of Black Monday, since it proves that the credit crunch crisis is not history as some analysts and governmental bodies are trying to convince us. This is the crisis, we live and breathe in it, and it’s definitely not yet over.
The discussions that Lehman’s management board had with potential buyers were in vain, as the US government avoided offering any kind of guarantees or financial support as it has done with Bear Stearns- fearing further criticism about its practices and the inflated bill taxpayers are called to pay whenever the government decides to save or ease the sale of a company.
Lehman Brothers was founded in 1850 by three Jewish immigrants from Germany.
The price stock plummeted by 81% at the Frankfurt stock exchange, trading at 69 cents, when in the beginning of the year it was trading above 90 dollars. This is the biggest bomb in the US banking history, as Lehman has a debt account of $613 billion.
Bank of America’s move to buy out Merrill Lynch is also a product of the credit crisis, as Merrill Lynch would most likely have had the same fate with Lehman Brothers and Bear Stearns; joining more than ten banks that have not survived the 2008 credit crunch crisis.
Merrill Lynch stock price climbed by 40%, at 23.94 dollars, when Bank of America lost 4.80 dollars, now trading at 29.94 dollars.
In the meanwhile, investors are also worried by the fact that the biggest US insurance company AIG is seeking to raise capital as a matter of urgency to avoid a credit rating downgrade, which would irreversibly damage the company’s credit trustworthiness. Its stock has fallen by 26% and is now trading at $9.03.
- I have been writing articles about finance, the stock market and wealth management since 2008. I have worked as an analyst, fund manager and as a junior trader in 7 different institutions.