Lehman Brothers expected to file for Chapter 7 liquidation before midnight NY time…Bank of America reportedly in talks to take over Merrill Lynch…AIG to unveil survival plan in emergency conference call on Monday…
As one Alphaville commenter put it earlier, Lehman looks have have been abandoned, with a firebreak is being dug around Merrill.
AIG was supposed to be the biggest insurer in the world. There’s no one to take it over. In the private sector, at least - and if there is one factor that has marked this weekend as perhaps the point at which this 15 month crisis finally came to a head, it is the cold realisation by the US Treasury and Federal Reserve that they could not continue to bear losses that in a market economy should be borne by those taking the risks.
Think about it. Merrill Lynch is synonymous with market capitalism in the US, if not the world. The Bronze Bull, The Thundering Herd. An emergency takeover signals that it too is all but insolvent. Or will be if and when credit markets jack-knife on Monday morning.
But we should take a moment to look at the WSJ’s story that BoA is looking at acquiring Merrill.
By MATTHEW KARNITSCHNIG, SUSANNE CRAIG and DENNIS K. BERMAN September 14, 2008 4:08 p.m.
Bank of America and Merrill Lynch & Co. Inc. are in merger discussions, according to people familiar with the matter.
The talks come amid a Wall Street scramble to sort out a potential liquidation of Lehman Brothers Holdings Inc. Bank of America had considered buying Lehman, but when those talks failed to result in a deal, BofA turned its attention to Merrill, which is considered a better fit for the bank.
Much remains uncertain and conditions were fluid.
New York Times reporters learnt the same thing a little while later:
Bank of America is in advanced talks to buy Merrill Lynch for at least $38.25 billion in stock, people briefed on the negotiations said on Sunday, as a means to preserve that investment bank while Lehman Brothers looks likely to collapse.
The move suggests a desperate effort at triage on Wall Street, as Bank of America works to shore up the likely next victim of the credit crunch. A deal, valued at between $25 a share to $30 a share, could be announced as soon as Sunday night, these people said. Merrill shares closed at $17.05 on Friday.
So the first thing we can assume is that Ken Lewis at BoA actually read Thorold Baker late on Friday.
But perhaps the more important question is whether Mr. Lewis actually should wait and see if he can snap up an even bigger prize: Merrill Lynch. After all, in this crisis, he can probably only step in once to buy an investment bank on the cheap.
But wait. The US Treasury, the Fed, BoA, Barclays, a host of reps from every serious bank in the West, and even Bob Diamond, spend THREE DAYS discussing a bail-out of Lehman.
And when those crisis talks fail, Lewis coolly turns round and says, almost publicly, “Hey, we’ll bid for Merrill instead. And we’ll pay something approaching a 100 per cent premium to the market price…which will cost, er…$38bn.” Really?
Are BoA shareholders happy with the chief executive spending their money in this way? Or is the bank a defacto arm of the US Treasury? Or is the systemic hole both regulators and Wall St execs are looking into really so deep that the markets should be bluntly managed away from pricing in catastrophe?
Sure, in normal times, a $38bn bid at a a slam dunk premium would have had the financial markets salivating. Right now it is just as likely to induce foaming around the mouth.
