North American markets fell on Monday following news that Lehman Brothers, the fourth-largest investment bank in the United States, has filed for Chapter 11 bankruptcy.
Two of its reported suitors—Bank of America and Barclays—walked away from the negotiating table during the weekend, leaving Lehman no choice but to file for creditor protection.
For institutional investors dealing with Lehman’s investment management division, it will be as if nothing happened. “Neuberger Berman and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of its parent, and its portfolio management, research and operating functions remain intact,” according to a company statement.
One of the other independent Wall Street brokerages, Merrill Lynch, decided it couldn’t go it alone any longer and Bank of America signed a deal to buy Merrill for US$50 billion.
Meanwhile, AIG, one of the world’s largest insurance companies, has reportedly asked the U.S. Federal Reserve for emergency funding.
To try and calm the fears of nervous investors, a consortium of 10 banks and brokerages have taken a series of actions to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.
The banks (Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS) will establish a collateralized borrowing facility and have each committed $7 billion, or $70 billion in total, to the facility.
“These actions reflect the extraordinary market environment,” says a statement from the consortium. “These cooperative efforts will be enhanced by the Federal Reserve Board’s decision to accept expanded classes of collateral under the Primary Dealers Credit Facility, including equities.”
The banks say they are committed to continuing to work closely with one another as well as the U.S. Treasury Department, the Federal Reserve, the Securities and Exchange Commission, governments and regulators around the world, and other market participants, to ensure the industry is doing everything it can to provide additional liquidity and assurance to our capital markets and banking system.