From the WSJ:At about 3 p.m. on Saturday, Barclays President Robert E. Diamond Jr. was seen entering the New York Fed’s employee entrance on Maiden Lane, carrying a briefcase…
On Sunday, The Journal was taking a decidedly glass-half-empty approach in its reporting of the frantic attempts to save Lehman Brothers.
After Friday’s meeting, an all day Saturday affair at the Fed looked to be turning into a full long-weekender, with Fed chairman Ben Bernanke and US treasury secretary Hank Paulson having called in representatives from just about every sizeable investment bank in the western world.
The outline plan seems to be this. Barclays or Bank of America (or maybe even HSBC) will take over “good” Lehman - or “core Lehman, as chairman Dick Fuld liked to call it last week. “Bad” Lehman - or “SpinCo - will be hived off into a separate entity, into which banks from the US and Europe will each inject some capital. The principle aim is to prevent a firesale of Lehman’s toxic CMBS and other distressed assets, which might force other banks to mark their own infected paper down to “distressed market” prices.
Financial Armageddon might follow.
The trouble is, banks on Wall St and the City find themselves a little strapped right now; they need capital to support their own franchises. That, and also the fact that they are not minded to support a proposal whereby they would effectively subsidise a potential bargain basement takeover of Lehman’s generally well-regarded equity and fixed income businesses by a big rival.
Predictably, everyone involved wants the US government to do the subsidising, but Messrs Paulson and Bernanke know that they can’t really be seen as guaranteeing the debts associated with such a rescue - otherwise they really will be facing a wholesale nationalisation of Wall St.
Still, Dealbreaker’s John Carney (filing at 2.43am EST) was ready to take glass-half-full approach:
We understand that a deal has been reached to divide Lehman Brothers into two entities, with a “bad bank” taking the toxic, real-estate assets amounting to around $85 billion. The deal will be financed without any government backing. Lehman chief executive Dick Fuld will resign.
Bank of America will take the lion’s share of the good assets of Lehman, with Barclay’s and Nomura playing a role as well. An international consortium of financial firms will inject capital for the deal, preventing Lehman’s assets from flooding the market in a fire sale. Many US based firms have not played a large role, in part because they are facing their own financial challenges.
So too was CNBC’s Charlie Gasparino:
Under the terms of the proposal, which could still blow up, all the major Wall Street firms would pitch in $30 billion total to purchase Lehman’s bad real estate assets and create what’s knows as a “bad bank.”
The proposal is being drafted Saturday night and will be discussed Sunday morning, according to sources close to CNBC. If Wall Street agrees on the terms, which would amount to around $3 billion per firm, it would clear the way for the sale of Lehman Brothers itself to one of several suitors, including Bank of America, Barclays Plc and HSBC.
Not so, Nouriel Roubini. His glass is already empty:
It is now clear that we are again — as we were in mid- March at the time of the Bear Stearns collapse — an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday (as they all will in the absence of a deal) you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers (Merrill Lynch first but also in sequence Goldman Sachs and Morgan Stanley and possibly even those broker dealers that are part of a larger commercial bank, I.e. JP Morgan and Citigroup). Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer.
Race to save Lehman Brothers continues - FT
Lehman in depth - FT package
Major Financial Players Map Out Lehman Options - Washington Post
