Lehmans

[Renegade]

The dollar dropped like a rock when the FX market opened back up....

[Johnny]

Originally Posted by Rens article

``The collapse of this deal casts a dark cloud over Wall Street,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``It also sends a message that the government is getting out of the bailout business and makes financial institutions like AIG and WaMu look even more vulnerable.''

If it were only true...

[Darkimbolc]

What I think is the biggest question now is where are the super rich going to want to live?

Rumor has it Bush has bought the farm - litterally: 1 million acres in Paraguay. Now, I mention Bush not to derail the thread into Bush bashing, but if the rumor is true, it fits the question. They'll move to somewhere they can live like kings without extradition.

[noeyedeer]

Originally Posted by Johnny

If it were only true...

It's not.

And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.


http://dealbook.blogs.nytimes.com/20...cy-protection/

[Vog46_1999]

Originally Posted by noeyedeer

It's not.

And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.


http://dealbook.blogs.nytimes.com/20...cy-protection/

Here's how CNBC is reporting it:

Lehman Brothers Plans to File for Bankruptcy Shortly
CNBC STAFF AND WIRE REPORTS | September 14, 2008 | 7:35 PM EST

CNBC has confirmed press reports that Lehman Brothers is likely to file for bankruptcy protection as soon as Sunday evening.

Among details to be worked out: the accounting treatment for certain derivatives and repurchase positions, an area not currently covered by bankruptcy laws; and the orderly netting out of a variety of securities positions to which Lehman Brothers is contractually obligated.

Federal authorities are expected to be involved in the orderly disposition of Lehman assets if such a filing occurs. Sources knowledgeable about the weekend deliberations tell CNBC that without some government participation in the process, a bankruptcy filing by Lehman Brothers would cause major disruptions in the financial system.

Officials at the Federal Reserve and U.S. Treasury are taking steps to mitigate risk to the system and assure the orderly functioning of the markets tomorrow.

According to the New York Times, Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings.

A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government, the New York Times says.

It is not clear whether the government would appoint a trustee to supervise Lehman’s liquidation, or how big the financial backstop would be.

Lehman's fate seem sealed after Barclays walked away from a deal to purchase the troubled Wall Street investment bank — brokers Sunday afternoon were streaming into their offices and a special trading session for credit default swaps was called.


*************************************************

A few minutes ago they showed a shot of Lehman employees coming outta the building with boxes of personal belongings

Best Regards
Vog

[vince08]

if lehmans does go bust how bad would it affect the markets..........?

[Vog46_1999]

Originally Posted by russell family

if lehmans does go bust how bad would it affect the markets..........?

Dow futures are down 244

Best Regards
Vog

[Fiddlerdave]

1) Notwithstanding recent dramatic drops in bank share prices, the bank shareholders, and executives, on balance, have financially benefited from years of mortgage investment excesses and largess, taking the money/gains up front, and leaving the present mess.

Stop the presses! All is well! The financial rating agencies that for so long gave AAA ratings to these operators just showed up to save the day! (from Market Ticker forum via PO.com)

http://www.youtube.com/watch?v=IKs2NALJgwo

NOT!

[Renegade]

Thanks Dave! I needed that!!!

[vince08]

U.S. financial system faces shakeup

By Dan Wilchins and Glenn Somerville Reuters - 2 hours 5 minutes agoNEW YORK/WASHINGTON (Reuters) - The ruptured U.S. financial system was facing an unprecedented shakeup on Sunday that could lead to the failure of Lehman Brothers, the takeover of Merrill Lynch & Co Inc and big asset sales by big insurer American International Group.


The developments may indicate Wall Street and Washington are accepting that massive triage is necessary in the face of the 13-month old credit crisis and destructive U.S. housing bust.

"The U.S. financial system is finding the tectonic plates underneath its foundation are shifting like they have never shifted before," said Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey. "It's a new financial world on the verge of a complete reorganization."

The focus on Sunday had initially been on whether talks between regulators and Wall Street's top bankers could lead to the sale of Lehman, which until recently was the fourth-largest U.S. investment bank.

However, those talks faltered when Britain's Barclays Plc, which had appeared to be front-runner to take over Lehman -- excluding its toxic mortgage-related assets -- said it had pulled out of the bidding.

That triggered expectations the investment bank is heading into bankruptcy and prompted a rare emergency trading session on Sunday to allow Wall Street dealers in the $455 trillion derivatives market to reduce their exposure to the firm.

The Lehman news pushed U.S. stock index futures sharply lower on Sunday, with the S&P500 futures down 36.40 points at 1222.10, and the U.S. dollar tumbled in early trade in New Zealand, with the euro jumping to 1.4306/10 at 2214 GMT compared with $1.4225 in late U.S. trade on Friday.

Within hours of Barclays withdrawal, the New York Times was reporting that Bank of America was in advanced talks to acquire Merrill for at least $38.25 billion in stock, citing people briefed on the negotiations.

And then, the Wall Street Journal said that AIG, which was until recently the world's largest insurer by market value, is expected to sell off assets, including a profitable aircraft leasing arm.

REAL ESTATE WOES

Merrill, AIG and Washington Mutual, which was the subject of conflicting reports on Friday about whether it was in advanced talks for a sale to JPMorgan Chase & Co all face similar problems because of their ownership of real-estate related assets that have fallen sharply in value.

A perception among investors that the losses they have disclosed are far from enough, and that they will have difficulty in raising new capital, has driven their share prices sharply lower.

One of the catalysts for this weekend's events was the stance of U.S. Treasury Secretary Henry Paulson.

He was strongly opposed to using government money in any deal aimed at resolving the Lehman crisis, a source familiar with his thinking reiterated on Sunday.

The lack of such government guarantees was the main reason Barclays decided to exit the negotiations to buy Lehman, according to a person familiar with the matter.

An emergency trading session was set between dealers with Lehman Brothers counterparty risk involved credit, equity, rates, foreign exchange and commodity derivatives, the International Swaps and Derivatives Association said.

"This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in today's highly disrupted financial markets, the unthinkable is thinkable," said Mohamed El-Erian, the chief executive of Pimco, the world's biggest bond fund.

Market sources said the special session was initiated by the Federal Reserve.

The aim was to reduce risk associated with a potential bankruptcy filing by Lehman Brothers.

"Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time Sunday (0359 GMT)," said the statement. "If there is no filing, the trades cease to exist."

The special session "is a way to offset the risk between the remaining large banks and insurance companies and fund managers prior to the markets opening in Asia," said Mark Grant, managing director of structured finance at Southwest Securities, based in Dallas.

Grant is expecting a turbulent session when the U.S. markets reopen for business on Monday.

"No one has any idea about the credit quality of the assets in Lehman's portfolio and no one has a handle about the size of the CDS (credit default swap) contracts," he said.

"The market is going to be spooked. People will be fearful and no one outside a very small group of people knows what Lehman going into liquidation will mean."

If there is a forced sale or liquidation, "this could set off another round of writedowns globally."

BALANCING ACT

Lehman has been collapsing under the weight of toxic assets, mainly related to real-estate, that are now worth only a fraction of their original prices.

The crisis at Lehman presented a delicate balancing act for Paulson and the Federal Reserve, who have urged Wall Street chiefs to come up with their own solution.

So far this year, the government has sponsored rescues of Lehman rival Bear Stearns and mortgage lenders Freddie Mac and Fannie Mae.

The authorities don't want to be accused of encouraging excessive risk-taking by bailing out another yet another investment bank.

But they also cannot afford to let a blow-up of Lehman paralyze the financial system and deepen the credit crisis.

"Anyone else who has these toxic assets, if they haven't made a full confession, they better do it now," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, Ohio, which has $2.9 billion of assets under management.

"These assets may be hard to unwind, but they can unwind your firm. Lehman tried to deny reality until the bitter end."

BAD BANK

Bankruptcy would mark an ignominious end to a once-proud firm, founded by cotton-trading German immigrants 158 years ago. It would also badly tarnish the reputation of CEO Dick Fuld, who has insisted that his firm could work through its problems to survive as an independent entity.

One solution that has been considered is a hiving-off of Lehman's bad assets into a "bad bank", in which rivals would take stakes, people briefed on the matter said.

It wasn't immediately clear whether such a plan could be part of a bankruptcy filing.

Former Federal Reserve Chairman Alan Greenspan said on Sunday he suspected "we will see other major financial firms fail," but added that this did not need to be a problem.

"It depends on how it is handled and how the liquidations take place," Greenspan told the ABC program "This Week."

"And indeed we shouldn't try to protect every single institution. The ordinary course of financial change has winners and losers."

At Lehman's headquarters in midtown Manhattan, employees were coming and going throughout the day.

Few agreed to be interviewed.

"For some people it's business as usual, but other people are worried about liquidation and that they won't have jobs," commented a man who said he worked in the investment banking division.

"Some people are upstairs and working on their projects. Others are worried that they'll be out of work and are packing up," said the man, who declined to give his name.

Security outside the Fed building where talks between banks and regulators over the crisis were continuing was even tighter on Sunday than on Saturday, with nine dark-blue federal government vans blocking the area around the entrance and security guards preventing reporters from getting close. By early evening, some of the executives had left the building but others remained.

DIFFERENT THIS TIME

The meetings with the CEOs of Wall Street's top banks were reminiscent of the 1998 bailout of hedge fund Long-Term Capital Management, two sources familiar with the situation said.

With LTCM, major banks each contributed to a $3.65 billion bailout of the hedge fund, allowing it to be wound down in an orderly way.

This time may be different. The capital of many top banks is already strained by the credit crisis, making them reluctant to fork over funds to help Lehman, whose problems are largely a result of bad bets on the U.S. mortgage market.

Also, while LTCM was a client of most Wall Street firms, Lehman is a competitor.

Lehman has hired law firm Weil Gotshal & Manges to prepare a potential bankruptcy filing, the Wall Street Journal reported on Saturday, citing a person familiar with the matter.


http://uk.news.yahoo.com/rtrs/200809...n-ca02f96.html

[Renegade]

Lehman Brothers Plans to File for Bankruptcy Shortly

By CNBC.com | 14 Sep 2008 | 07:35 PM ET


CNBC has confirmed press reports that Lehman Brothers is likely to file for bankruptcy protection as soon as Sunday evening.

Among details to be worked out: the accounting treatment for certain derivatives and repurchase positions, an area not currently covered by bankruptcy laws; and the orderly netting out of a variety of securities positions to which Lehman Brothers is contractually obligated.

Federal authorities are expected to be involved in the orderly disposition of Lehman assets if such a filing occurs. Sources knowledgeable about the weekend deliberations tell CNBC that without some government participation in the process, a bankruptcy filing by Lehman Brothers would cause major disruptions in the financial system.

Officials at the Federal Reserve and U.S. Treasury are taking steps to mitigate risk to the system and assure the orderly functioning of the markets tomorrow.

According to the New York Times, Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, while its subsidiaries will remain solvent while the firm liquidates its holdings.

A consortium of banks will provide a financial backstop to help provide an orderly winding down of the 158-year-old investment bank. And the Federal Reserve has agreed to accept lower-quality assets in return for loans from the government, the New York Times says.

It is not clear whether the government would appoint a trustee to supervise Lehman’s liquidation, or how big the financial backstop would be.

Lehman's fate seem sealed after Barclays walked away from a deal to purchase the troubled Wall Street investment bank — brokers Sunday afternoon were streaming into their offices and a special trading session for credit default swaps was called.

Bank of America, Merrill Talk Merger

CNBC also has learned that Bank of America [BAC 33.74 0.68 (+2.06%) ] has pulled out of negotiations to buy Lehman Brothers and has set its sights on Merrill Lynch. Merrill plans an internal (employee) announcement for 8 - 9 a.m. ET. to announce the possible merger with Bank of America.

The merger talks continue as this news breaks. Inside Merrill sources say price the merger price could be between $25 to $30 per Merrill share. But the situation is extremely fluid and this could easily change.

Pressure to find a merger partner came after Merrill liquidity started to "evaporating" on Friday. Merrill is worried about a sharp decline in share price on Monday, according to people inside the firm.

Merrill is expecting huge job losses -- the brokerage division will stay intact, but there will be large-scale reductions in workforce. A senior Merrill official was quoted as saying, "It's over."

"Right now all the firms are preparing for an orderly bankruptcy," said one Wall Street executive involved in the negotiations.

Bank of America also has offered to take the other side of Lehman’s swap trades — essentially insurance that Lehman had provided for the bonds of other companies.

Wall Street Prepares for Grim Monday

Meanwhile, the big Wall Street firms are balking at a plan to buy the bad debt because they say they don't have the money and are worried that they may be called on again to bail out another firm.

For that reason, Wall Street traders headed back to their offices this afternoon to prepare for the market impact of a pre-package bankruptcy and the unwinding of Lehman's balance sheet of approximately $700 million. One Wall Street trader involved in the discussions with officials from the Federal Reserve said every firm had determined their exposure to Lehman by this morning, and were preparing for some Fed help in unwinding the trades.

But officials from the Federal Reserve said they won't be involved in any such unwind — they told the Wall Street firms to work among themselves to determine how best to settle trades with Lehman.

The Associated Press reports, citing a "top investment banking official", that US and foreign banks plan to spend up to $50 billion to create a fund to assist troubled financial companies. The AP also said officials at the U.S. Treasury and Federal Reserve are expected to say they are ready to make additional loans.

The Fall of Lehman Brothers

Such a move adds another level of uncertainty to the markets as it braces for the growing possibility that Lehman will file for bankruptcy. Many traders expect massive selling pressure if Lehman does declare bankruptcy beginning when the Asian markets open.

Still others can't believe there won't be a last minute compromise.

"I can't believe people won't give a bit," said one trader involved in the negotiation. "I don't see why this is happening."

One person with knowledge of Sunday's deliberation's called it "a big game of chicken" with all sides digging in their heels.

Meanwhile, officials at one of Lehman's most highly prized assets, asset manager Neuberger Berman, were hoping to find out their fate this afternoon, but were told to simply stay by their e-mails for an announcement that may or may not come.

Bank of America

Bank of America sent a note to derivatives traders Sunday saying "Banks, brokers started netting Lehman trades from 2 p.m. today … trades netted are contingent on Lehman bankruptcy by midnight." The note continued "If no Lehman bankruptcy, netting of trades to be cancelled," meaning Bank of America's assumption of Lehman’s side of trades would end.

"It’s a way of lessening the pressure before Wall Street opens up tomorrow. The more they can reduce the total brokerage book for Lehman, the less heart-ache there will be for counterparties if Lehman files," Carlos Mendez, senior managing director of ICP Capital in New York.

The International Swaps and Derivatives Association called a special session from 2 p.m. to 4 p.m. but traders said that was purely symbolic. They intended to trade through the night.

The cost of insuring the bonds of investment bankers blew out in trading on Sunday.

Barclays Pulls Out

Earlier in the day, the United Kingdom's Barclays Bank pulled out of talks to buy Lehman. Barclays, which was considered the lead candidate to buy Lehman, reportedly was unable to agree on credit guarantees to shield them from potential losses.

Top Wall Street executives arrived Sunday morning for another round of talks to resolve the Lehman crisis, and sources said the group continued to work on how to handle the possibility of a deal not getting done before Monday.

By mid-morning, Federal Reserve Chairman Ben Bernanke was said to have been involved in several conversations by phone from Washington with officials meeting at the New York Federal Reserve. In addition, Bernanke was said to have made several calls already to foreign central bankers who are monitoring the proceedings carefully.

New York Federal Reserve President Tim Geithner and Treasury Secretary Hank Paulson were already at the New York Fed by the time executives from top Wall Street firms began to arrive.

Work went on through the night on a deal drafted Saturday to have a consortium of banks backstop Lehman's bad assets and sell off the rest of the bank to Bank of America and Barclays. But sources said key parts of the deal remained controversial Sunday morning. As reported, the banks backstopping the bad loans were said to be balking at the amount of capital required of the banks and the sense that they were supporting a good deal for Barclays and Bank of America.

The larger group has been broken up into several working groups to devise responses to different possible outcomes. Among those, how markets can prepare for the possibility that Lehman might not find a buyer before Monday.

[Curious]

Lehman's BR will be big news ... but the DISASTER for the everyday person and businesses will be if AIG liquidates.

AIG is the largest insurer in the the US ... and LOTS of companies and even individuals have insurance through that giant. It's collapse will send SHOCK WAVES through the entire insurance business and the after effects may not be pretty at all.

Eventually I still believe one of the big 4 banks may also go before this giant unwinding comes to it's conclusion ... and my long term projections indicate that it will be touch and go for the the Dollar itself before everything is said and done.

Curious

[preppiechick]

Some more:

http://news.yahoo.com/s/ap/20080915/...ncial_meltdown

AP
Lehman rescue stalls; BofA seen buying Merrill

By JOE BEL BRUNO, CHRISTOPHER S. RUGABER and MARTIN CRUTSINGER, AP Business Writers 1 minute ago

NEW YORK - A failed plan to rescue Lehman Brothers was followed Sunday by more seismic shocks from Wall Street, including an apparent government-brokered takeover of Merrill Lynch by the Bank of America.
ADVERTISEMENT

A forced restructuring of the world's largest insurance company, American International Group Inc., also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified.

A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Seven banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

The Federal Reserve also chipped in with more largesse in its emergency lending program for commercial and investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."

Futures pegged to the Dow Jones industrial average fell almost 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling.

Lehman Brothers may be forced to seek an orderly unwinding of its businesses. All potential buyers walked away after the U.S. Treasury refused to budge on its refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

Expectations that the 158-year-old Lehman would survive dimmed after Barclays PLC withdrew its bid to buy the investment bank. Barclays and Bank of America were considered front-runners to buy Lehman, which is foundering under the weight of $60 billion in soured real estate holdings.

Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for $29 a share, according to the Wall Street Journal. That's a prremium to its closing price on Friday of $17.05 but only a fraction of its price of almost $100 a share early in 2007.

Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

And Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks.

The weekend's developments will likely spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the current administration may get a lot of blame for the situation, which could benefit Obama.

"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."

Paulson was huddled through the weekend at the New York Federal Reserve's fortress-like building in downtown Manhattan with executives from major banks and investment houses to hash out the fate of Lehman Brothers and to staunch the bleeding on Wall Street that threatened to shatter investor confidence around the globe.

"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

Nudged by the Treasury Department and the Fed, U.S. and foreign banks appeared ready to cooperate on a plan to shore up the global financial system. According to an investment banking official, they would create as much as a $100 billion pot to help out troubled investment firms and banks.

The meetings that began Friday night were a who's who of financial heavyweights: Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.'s John Thain.

For all their efforts, Lehman appeared ready to file for bankruptcy.

The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.

The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.-based banking consultant.

That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.

Roubini said with no deal for Lehman, Merrill and the other investment firms would have been hit with a "run on the bank," as hedge funds and other clients withdraw funds and banks become reluctant to lend to them. Many of the investment banks rely on short-term loans to finance their day-to-day operations.

The cost of insuring financial firms' debt from default has been soaring.

A rise in the cost of the insurance, known as credit default swaps, indicates debt holders believe there is a greater chance of default by the financial companies. Especially over the past week, those insurance costs have been increasing rapidly as more debt holders fear companies like Lehman Brothers and Washington Mutual Inc. could collapse and not be able to repay their debt.

Swaps on most financial firms are likely to get even worse during the upcoming week, analysts said.

On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman — but that those trades would be

Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.

That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.

"Once you lose confidence, the fundamentals matter less," he said.

Ely said similar shake-outs have happened in other parts of the financial industry, such as credit cards and thrifts. Bank of America acquired independent credit card issuer MBNA in 2005, for example, while credit card company Capital One Financial Corp. has diversified itself by purchasing regional banks in Louisiana, Texas and New York.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.

___

AP Business Writers Madlen Read, Tim Paradis and Stephen Bernard in New York, Martin
Business Video

BTW, what has happened with the IMF audit, of the US? I haven't seen anything , on it, lately.

[sandyd]

Originally Posted by Curious

Lehman's BR will be big news ... but the DISASTER for the everyday person and businesses will be if AIG liquidates.

AIG is the largest insurer in the the US ... and LOTS of companies and even individuals have insurance through that giant. It's collapse will send SHOCK WAVES through the entire insurance business and the after effects may not be pretty at all.

Eventually I still believe one of the big 4 banks may also go before this giant unwinding comes to it's conclusion ... and my long term projections indicate that it will be touch and go for the the Dollar itself before everything is said and done.

Curious

Have you done any projections with other currencies? I wonder if my mattress needs to have Swiss Francs and Canadian Dollars in it?

TIA

[Haellan]

http://www.washtimes.com/news/2008/s...or-bankruptcy/

Monday, September 15, 2008
Lehman Brothers files for bankruptcy
Patrice Hill (Contact)
Wall Street titan Lehman Brothers filed for bankruptcy Sunday after potential buyers Barclays Banks of Britain and Bank of America backed away citing the Treasury's refusal to guarantee Lehman's toxic mortgage portfolio.

In weekend-long negotiations at the Federal Reserve Bank of New York, leaders of the Treasury, the Fed and the Securities and Exchange Commission sought to persuade the two banks, as well as other top Wall Street firms, to step forward and acquire all or part of Lehman to avoid a major downturn that could be triggered by a Lehman collapse when stock and credit markets reopen Monday.

With no takers, the once-powerful Lehman appeared likely to have to file for bankruptcy after 158 years in business, possibly as early as Sunday night. In anticipation of that happening, Wall Street firms conducted an unusual Sunday trading session in the $62 trillion credit-derivatives market to try to unwind sensitive credit-insurance deals backed by Lehman and forestall a potentially monumental crunch in the credit market on Monday.

Securities and Exchange Commission Chairman Christopher Cox said customers of the brokerage are protected from losses on their investment accounts under a federal insurance program. He urged any investors requiring help retrieving their money to contact the SEC.

"For several days, we have worked closely with regulators around the world, including to coordinate our actions in the interest of orderly markets," he said. "We are committed to [reducing] the potential for dislocations from recent events, and to maintain the smooth functioning of the financial markets."

The Fed also made an adjustment in its loan program for Wall Street firms to accommodate Lehman and other investment banks that are struggling to cope with mounting credit losses. It said it would accept lower-quality loans and mortgages as collateral on the loans. Previously, the Fed would accept only the highest-rated securities in exchange for the loans.

The federal involvement appeared minimal, aimed mostly at facilitating the liquidation of Lehman. Federal officials and Wall Street leaders were at loggerheads all weekend over the critical issue of government involvement in the transactions. Treasury Secretary Henry M. Paulson Jr. was adamantly against providing any guarantees on Lehman's money-losing assets like the guarantee the Fed provided on $29 billion of Bear Stearns mortgages in March to facilitate Bear's takeover by J.P. Morgan.

But Wall Street executives had little reason to put their own scarce capital into saving a competitor or backing its bad loans. In addition, political and financial leaders have been calling on the Treasury to draw the line and let the Lehman investment house fail to prevent any further unnecessary losses for taxpayers after the Treasury's massive bailout of Fannie Mae and Freddie Mac only a week ago.

Former Federal Reserve Chairman Alan Greenspan told ABC's "This Week" Sunday that not all major financial institutions can be saved and some are certain to fail in what he said may be the biggest credit crisis in a century.

"This is a once in a half-century, probably once in a century type of event," he said. "We shouldn't try to protect every single institution. The ordinary cost of financial change has winners and losers.

"What they are trying to do with Lehman is find a way in which there is no government money involved in this particular set of negotiations," he said. "If they can't, they have to make a very key decision as to whether they allow it to liquidate or support it."

Mr. Greenspan said the government should do what it can to ensure Lehman's failure is orderly and does not cause great turmoil to financial markets.

"There are certain types of institutions which are so fundamental to the functioning of the movement of savings into real investments in an economy that on very rare occasions, and this is one of them, it's desirable to prevent them from liquidating in a sharply disruptive manner," he said.

Public opinion has come out strongly against another massive bailout only days after the government took responsibility for Fannie's and Freddie's gigantic debts.

Democratic presidential candidate Sen. Barack Obama said he is opposed to any government intervention to save Lehman and advocates a private-sector solution. Republican presidential candidate Sen. John McCain has not taken a public position on the Lehman matter.

In the clearest sign that Lehman is headed for the bankruptcy courts in what would be the biggest Wall Street financial failure in decades, the International Swaps and Derivatives Association called for a special session Sunday to try to purge the intricately interconnected credit-default swaps market of insurance deals that would become worthless if Lehman goes bankrupt.

"The purpose of this session is to reduce risk associated with a potential Lehman Brothers Holding Inc. bankruptcy," the association said. But should bankruptcy be avoided, it added, any deals done during the Sunday session would "cease to exist."

How the markets would react to Lehman's failure is the subject of much debate. Most analysts feared it could cause a major disruption in the credit-insurance market, which is the reason behind Sunday's special session.

Because the government failed to provide any financial backing for Lehman, the broader stock and credit markets also may react negatively. The one certain thing is that Lehman's own stock will plummet, erasing what little value it had at the end of trading on Friday, when it closed at $3.65 a share.

One loose end from the fruitless weekend negotiations was the fate of an estimated $85 billion in bad loans Lehman has on its books. The company sought to separate those out and sell them, but found no buyers, and the government was unwilling to make them more salable by providing a guarantee.

Some analysts fear that if the loan portfolios are sold at fire-sale prices in bankruptcy proceedings, that will lead to further steep write-downs of similar loans on the books of nearly every other U.S. bank and financial institution, possibly triggering another round of deep losses and bank failures.

But many other Wall Street analysts have concluded that a Lehman bankruptcy can be absorbed by the financial system without great damage.

"Six months after Bear, regulators should have ensured that a smallish investment bank could go under without systemic damage," said Richard Beales, analyst at BreakingViews.com. "If Hank Paulson and company feels the need to step in, it suggests that years of deregulation have locked in a government backstop for Wall Street's risk-taking."

"Lehman has a negative net worth," said Peter Morici, business professor at the University of Maryland. "Most other banks need all the cash they have to cover their own bad securities, and any money they put into a crippled holding company would likely just be lost.

"It is time to toss in the towel on Lehman, unwind the counterparty trades and march it through Chapter 7," he said.

[Haellan]

http://www.forbes.com/business/2008/...914bizfed.html

Lehman's Collapse
Bracing For Impact
Liz Moyer, 09.14.08, 11:39 PM ET

Regulators and the banking industry scrambled Sunday night to blunt the effects of an expected bankruptcy filing by Lehman Brothers.

A group of banks organized a $70 billion fund to help each other out. The Federal Reserve also took steps to ensure liquidity in the lending market and the SEC moved to protect Lehman's brokerage customers.

The institutions contributing to the $70 billion fund include Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley and UBS. Each pitched in $7 billion. Banks can use up to one third of the total fund.

Late Sunday, they also said they were committed to their trading relationships, dealer credit terms, and capital committed to markets. The goal is to ease the expected burden that will result from a Lehman bankruptcy filing, including the unwinding of over the counter derivatives trades with Lehman.

"All participating banks intend to utilize this facility beginning this week," the group said in a statement Sunday.

The Federal Reserve said it would accept more collateral, namely tri-party repurchase agreements that banks use to fund operations overnight, through its emergency lending windows to banks and broker dealers, in an effort to lessen the damage the liquidation of Lehman Brothers will have on financial markets starting Monday. The Fed had previously only accepted investment-grade collateral.

The move highlights the urgency of the situation. Lehman is expected to file for bankruptcy protection Sunday night, after weekend talks in New York among regulators and the heads of major Wall Street firms collapsed.

"In close collaboration with the Treasury and the Securities and Exchange Commission, we have been in ongoing discussions with market participants, including through the weekend, to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses," said Federal Reserve Board Chairman Ben S. Bernanke in a statement late Sunday. "The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets."

The SEC also moved Sunday to limit the damage to brokerage customers of Lehman. They would be covered by the Securities Investor Protection Corp., a form of insurance similar to banking's Federal Deposit Insurance Corp. Under the SIPC, brokerage accounts are insured up to $500,000, and $100,00 for cash, but many firms provide additional insurance coverage. According to the SIPC's website, the insurance fund stood at $1.52 billion.

It was not clear Sunday night how many of Lehman's brokerage customers would be exposed to losses, or in what amount. The SEC says it is working with Lehman to ensure that customers will not be adversely affected by a liquidation of the firm.

SEC staff who have been on-site at the U.S. broker-dealer will remain in place in coming weeks, the agency said in a statement

“For several days, we have worked closely with regulators around the world including the FSA in the United Kingdom, the BaF in Germany, and the FSA in Japan, as well as our counterparts in other markets around the world, to coordinate our actions in the interest of orderly markets,” said SEC Chairman Christopher Cox. “In doing so we have also worked closely with the Treasury and the Federal Reserve and market participants. We are committed to using our regulatory and supervisory authorities to reduce the potential for dislocations from recent events, and to maintain the smooth functioning of the financial markets.”

[Haellan]

http://www.ft.com/cms/s/0/ac5330c2-8...077b07658.html

Lehman employees prepare for exit
By Aline van Duyn in New York

Published: September 15 2008 02:50 | Last updated: September 15 2008 02:50

A steady stream of employees carrying boxes and bags came out of Lehman Brothers’ mid-town Manhattan headquarters as darkness fell on Sunday evening and bankruptcy loomed for the 158-year-old Wall Street institution.

Its neon-lit facade still flashing brightly, employees coming out of the building said they had been told to come to work on Monday, but that it could be their last day there.

“I got a call from a senior executive and was told I should come in tomorrow, but that I should be prepared to pack my bags,” one investment banker leaving the building said. “No one knows what they are going to do, from kids in their first year out of college to senior managing directors, they are all in the same boat. It is just grim.”

Numerous employees were working until late in the night, with deliveries of pizza and Chinese food arriving at the building, where Lehman moved after the 9/11 attacks destroyed its downtown offices.

A bankruptcy filing by Lehman would be likely to cause thousands of job losses among the investment bank’s 25,000-strong staff. With lay-offs at many other Wall Street firms, and growing numbers of hedge funds making losses, bankers said they did not know where they would find new jobs.

“There are no jobs anywhere,” said one Lehman employee. “I’m alright, because I have saved a lot of money, but I know people who are really going to be in trouble.”

Many of the departing employees - some with their kids, some carrying potted plants and paintings but most just lugging a couple of bags full of documents - refused to talk to the press and tried to avoid the crowd of curious onlookers that New York cops later dispersed.

Some were angry at colleagues who did speak to reporters.

When asked what people were taking out of the building, one banker who climbed into a yellow taxi with three big bags, said: “Not enough level three assets. I just can’t believe this.”

[MomCares]

The institutions contributing to the $70 billion fund include Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley and UBS. Each pitched in $7 billion. Banks can use up to one third of the total fund.

Late Sunday, they also said they were committed to their trading relationships, dealer credit terms, and capital committed to markets. The goal is to ease the expected burden that will result from a Lehman bankruptcy filing, including the unwinding of over the counter derivatives trades with Lehman.

"All participating banks intend to utilize this facility beginning this week," the group said in a statement

So... would one be wise to have at least some money in one of these 10 banks? Are they the ones fairly sure to remain standing?


MomCares

[Haellan]

http://www.lehman.com/press/pdf_2008...1_announce.pdf

[vince08]

lehmans british side gone into admin, and the bank of england and the european central bank both closely monitoring the markets.

[vince08]

Lehman Bros files for bankruptcy



The FTSE 100 index of leading UK shares was down 160 points, almost 3%, at 5256.50 in early exchanges.

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 money markets and stood ready to intervene if necessary.

Talks collapse

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.

Greg Wood, the BBC's North America business correspondent, said that police had cordoned off the bank's headquarters in New York and staff were leaving with cardboard boxes as onlookers gathered to watch the bank's demise.

"I think the whole history - 150 years of effort and hard work - that's the most saddening part for me," said one Lehman employee as she left the building.

The bank, which employs about 25,000 staff worldwide, including 5,000 in the UK, was founded in 1850 by three brothers.

'Extraordinary 24 hours'

Lehman Brothers said it intended to file for Chapter 11 bankruptcy protection, which allows a company time to reorganise and devise a plan to pay creditors over time.

FROM THE TODAY PROGRAMME


More from Today programme

It said that its broker-dealer division and asset management division Neuberger Berman Holdings would not be included in the filing.

The accounting firm PriceWaterhouseCoopers said the UK operations of Lehman Brothers have been placed under administration, and the business would be wound down in an orderly fashion.

Bank of America said it had agreed to buy investment bank Merrill Lynch for $50bn (£28bn), in a deal that will create the world's largest financial services company.

Three of the top five US investment banks have now fallen victim to the credit crunch. Lehman and Merrill join Bear Stearns, which was sold to JP Morgan for a knockdown price in March.

The BBC's business editor, Robert Peston, said that it had been Wall Street's most extraordinary 24 hours since the late 1920s.

He said that Merrill's sale was almost as shocking as Lehman's demise.

"The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence," he said.

Insurer in trouble

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.




the european central bank has injected 30 bn euros into the money markets to try and stabalise them and the bank of england has injected 5bn into the money markets.


http://news.bbc.co.uk/1/hi/business/7615931.stm

[Renegade]

Treasuries Soar as Lehman Boosts Bets Fed Will Lower Key Rate

By Agnes Lovasz and Wes Goodman

Sept. 15 (Bloomberg) -- Treasuries surged, sending two-year notes up by the most since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc. filed for bankruptcy and traders forecast the Federal Reserve will cut interest rates.

The gains pushed the yield below 2 percent for the first time since April after Barclays Plc and Bank of America Corp. withdrew from talks to acquire Lehman. Bank of America agreed to buy Merrill Lynch & Co. for about $50 billion. The dollar fell the most in a decade against the yen. European and Asian stocks tumbled and gold gained as much as 2.6 percent.

``It's a big knee-jerk reaction to the events overnight,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. ``It's very hard to see the safe-haven theme unwinding any time soon. It's a panic-driven market and in that sort of environment we're very prone to a big overshoot.''

The yield on two-year notes dropped 37 basis points, or 0.36 percentage point, to 1.84 percent as of 7 a.m. in New York, according to bond broker BGCantor Market Data. It fell 53 basis points two days after the 2001 attacks on New York and Washington. The 2.375 percent security due August 2010 rose 22/32, or $6.88 per $1,000 face amount, to 101 1/32.

Ten-year yields declined 21 basis points to 3.51 percent.

The difference in yield, or spread, between two- and 10- year notes widened to 167 basis points, the most in five months, as short-dated debt, more sensitive to the interest-rate outlook, outperformed. That steepened the so-called yield curve, a chart of bonds of different maturities.

Treasuries Outperform

The Fed expanded its lending facilities to support financial markets, increased the size of its Treasuries lending program to $200 billion and widened the collateral it accepts for loans to Wall Street bond dealers.

The steps ``are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement yesterday in Washington.

A group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity.

``The dynamics have shifted to such an extent over the weekend that you couldn't rule out further gains'' in Treasuries, Maloney said.

Two-year yields may drop towards 1.24 percent in coming days, he predicted, a level last reached on March 17, and the lowest since the 1950s. That was the day after the Fed cut the discount rate at an emergency weekend meeting and backed JPMorgan Chase & Co.'s deal to buy Bear Stearns Cos.

Stocks Decline

U.S. notes gained as the MSCI World Index of equities fell 1.4 percent. The dollar declined 2.4 percent against the yen and dropped 0.2 percent versus the euro. Markets in Japan, Hong Kong and China were closed for holidays.

Treasuries, considered the safest among government securities, outperformed German notes. The yield spread between two-year U.S. notes and comparable European securities widened to 188 basis points, the biggest gap since Sept. 4, from 176 basis points on Sept. 12.

Investors turned less bearish on Treasuries before a Fed policy meeting tomorrow, according to a survey by Ried, Thunberg & Co. for the week ended Sept. 12. The company's end-of-December sentiment index rose to 47, from 43 the week before. A reading below 50 means investors anticipate lower prices. The 28 fund managers surveyed by the company, another ICAP unit, manage a combined $1.4 trillion.

Fed Futures

Futures contracts on the Chicago Board of Trade showed a 76 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter point tomorrow, from zero a week ago.

``Trading started with a bang,'' said Andrew Brenner, co- head of structured products in New York at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``Banks are no longer lending. All this is going to get people talking about a Fed ease.''

The cost of protecting European, Australian and Asian corporate bonds from default jumped, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 79 basis points to 625, according to JPMorgan Chase & Co. prices. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality.

During an unprecedented trading session in New York yesterday the Markit CDX North America Investment Grade index reached a record 200 basis points from 152.5 on Sept. 12.

Paulson's Bazooka

U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.

Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. American International Group Inc. and Washington Mutual Inc. joined Lehman and Merrill in plunging last week.

AIG may seek help from the Fed, the Wall Street Journal reported. The insurer has turned down a private-equity investment because it would have meant turning over control of the company, the Journal said on its Web site, citing unnamed people familiar with the situation.

For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Fed will cut interest rates by year-end.

``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''

Kokusai Global, the second-biggest actively managed bond fund behind Gross' $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March, Horii said.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net
Last Updated: September 15, 2008 07:03 EDT
http://www.bloomberg.com/apps/news?p...qEw&refer=bond

[flourbug]

My oldest daughter works for an asset management firm. I said she'll probably have a busy day today. This was her reply:

oh its already been busy w/calls of people wanting to sell their entire accounts...
markets gonna crash again... opens in 20 minutes.

She said its mostly the small accounts - under $50,000 - people who can't afford to lose the money.

[Kassy]

Limited Lehman Fallout In Europe

LONDON -

Equity markets were painting a terrible picture of what Lehman Brothers Holdings' bankruptcy--one of the biggest failures in Wall Street history--meant for its cousins on the other side of the Atlantic. Europe's biggest bankssaw 6.4% of their value stripped away in Monday afternoon trading, but in the long run, it wasn't all bleak.

Lehman, in common with much of the financial industry around the world, has been caught in a credit crisis that emanated from the U.S. housing market, where imprudent lending led to mortgage defaults that crushed the value of bonds created from those loans and sent real estate prices plummetting. (See "Lehman Goes To The Wall.")

Right now the European firms that are suffering the most are doing so on a short-term basis because they are heavily reliant on the wholesale lending market--for example, the bank HBOS (other-otc: HBOOY - news - people ) were down 16.8% on Monday afternoon in London while British insurer Friends Provident (other-otc: FRDPF - news - people ) was down 17.0%. One of the early signs of the credit crunch this time last year was a drying up of liquidity, or aversion by banks to lend to each other, leading to Europe's biggest bank failure, Northern Rock.

Though not as fierce, a similar sentiment has followed the collapse of Lehman Brothers (nyse: LEH - news - people ). The latest euro Libor rate, which shows the rate at which banks lend to each other Europe, had increased to 4.97% on Monday afternoon, from 4.95%, on Friday. "The fear that we have now at the moment is who holds what," said Oliver Gilvarry of Dolmen Securities in Dublin. "Lehman was one of the largest mortgage-backed securities underwriters. Now that they're in Chapter 11, banks need to see what their exposure is to Lehman and unwind some of their positions."

That in mind, European financial firms were coming out in droves on Monday to confess their exposure to Lehman.

Probably the most directly exposed is French insurer AXA (nyse: AXA - news - people ), which owns 7.3% of Lehman Brothers. It said Monday that its net exposure to to brokerage came up to 300 million euros ($425 million). AXA's shares dropped 10.0%, or 2.24 euros ($3.18), to 20.02 euros ($28.38), on Monday afternoon in Paris.

Franco-Belgian bank Dexia said it had bond credit exposure worth 500.0 million euros ($710.2 million), attributable to Lehman; its shares were trading 9.7%, or 1.01 euros ($1.43), lower at 9.48 euros ($13.44), in Paris. France's BNP Paribas (other-otc: BNPQY - news - people ) (down 9.6% in Paris) was quoted by TradeTheNews.com as saying only that its exposure to Lehman Brothers was "manageable," while Lloyds TSB Group (nyse: LYG - news - people ) (down 5.6% in London) said its exposure was "limited."

KBC Groep of Belgium said it had about 480.0 million euros ($680.5 million) worth of exposure to Lehman through bonds, collateralized debt obligations and a "payment obligation" to the broker. KBC said it wanted to detail its exposure to Lehman because of the "market turmoil and uncertainty." Its shares fell 6.0%, or 3.87 euros ($5.49), to 60.98. euros ($86.47), on Monday afternoon in Amsterdam.

Gilvarry said that Irish banks had little exposure to Lehman because of their relatively small investment-banking operations, but increased interest rates in the wholesale lending market would be a problem.

Meanwhile, figures of European governmental institutions and regulators were calling for calm on Monday. Germany's Bundesbank said German bank exposure to the Lehman bankruptcy was limited, French Finance Minister Christine Legarde said Bank of America's (nyse: BAC - news - people ) acquisition of Merrill Lynch (nyse: MER - news - people ) was good news and that European markets should not overreact, and the British Banking Association said that no British banks were in trouble, according to TradeTheNews.com.

Is there the possibility of a similar failure in Europe? "I don't think we'll see anything to the same sort of scale as Lehman," said Cantor Fitzgerald portfolio strategist Stephen Pope. "European banks have been making progressive write-downs in an aggressive manner, and the drive for national champions should come to the fore."

"We're probably through the worst here," he added. "It's going to be smaller players that play in the investment banking game that will be under pressure."

http://www.forbes.com/markets/2008/0...markets13.html

[Kassy]

Hedge funds dealt another blow by Lehman failure

LONDON (Reuters) - The bankruptcy filing of Lehman Brothers (LEH.N: Quote, Profile, Research) is another blow for the hedge fund industry, though the writing has been on the wall long enough for many to have reduced their exposure to the U.S. investment bank.

Legendary fund manager George Soros, who runs around $18 billion in assets, looks likely to have had his fingers burned after raising his stake in Lehman to 9.5 million shares in the second quarter.

A spokesman for Soros Fund Management declined to comment on the composition of their portfolio.

British activist hedge fund Algebris will also probably have taken a hit from the fall in the share price of what was the fourth-largest U.S. investment bank.

The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman said, declining to give further details.

Dealings through Lehman's prime brokerage business were also suspended on Monday, which will have caused problems for some hedge funds, though the industry has been seeking to increase the number of banks they deal with to spread risk.

The slump in Lehman's share price is unlikely to have benefited many hedge funds, even though they have the ability to "short" a stock -- which is essentially a bet that makes them money when the share price falls.

Many had taken their bets off the table in recent weeks following the spike in bank shares in July, and shorting also becomes more costly as the share price falls, because fewer people are willing to be on the other side of the trade.

Continued...
http://uk.reuters.com/article/breaki...BrandChannel=0