Bank of America is leading a consortium that includes JC Flowers and China Investment Corp, the Chinese sovereign wealth fund, in a joint bid for Lehman Brothers.
Here’s the breaking FT story from Henny Sender, Francesco Guerrera and Peter Thal Larsen.
Separately, from Washington Krishna Guha reports that the putative bidders should not expect Bear Stearns-style financing and guarantees from the authorities. The US Treasury and Federal Reserve want/need to break the notion that in a rescue public money will be used to protect debt holders while equity holders get wiped out.
Snap FT Alphaville view: The Fed and US Treasury just cannot have everyone doin’ a Pimco. Therein lies political as well as economic ruin.
It’s also the case that Lehman’s counterparties have had plenty of time to plan and position themselves for a possible collapse of the bank. Those on Wall Street pleading “systemic risk” have a weaker hand.
That said, the authorities do in fact want to avoid a collapse.
So they are testing the market. The more negative the reaction on Friday, the bigger the eventual subsidy when a deal is actually hammered out. And vice versa.
Sunday is not necessarily a hard deadline, like everyone thinks. This is now about finding a solution before the credit rating agencies move to downgrade. And rating agencies executive can, of course, be lent on…
Plan B? if prices tank, cut rates next week.
Related links:
‘No public subsidy for Lehman rescue’ – FT
BofA, JC Flowers, CIC planning joint Lehman Brothers bid – FT
Lehman in depth – FT.com