Global markets shaken by Lehman failure, Merrill sale
Washington, September 15, 2008
Global financial markets were shaken to their core on Monday after Lehman Brothers filed for bankruptcy protection and Merrill Lynch agreed to be taken over as a deepening crisis took new, bigger victims.
The US Federal Reserve also said for the first time it will accept stocks in exchange for cash loans and 10 of the world's top banks agreed to establish a $70 billion emergency fund, with any one of them able to tap up to a third of that.
On a black Sunday for Wall Street, frantic attempts to find a rescuer for Lehman failed, and troubled insurer American International Group asked the Fed for a lifeline, according to news reports.
But Bank of America agreed to buy Merrill Lynch in an all-stock deal worth $50 billion, seeking a bargain as the world's largest retail brokerage sought refuge from fears it could be the next victim.
'It's a return to pure capitalism, the survival of the fittest -- the government can't and won't bail everybody out,' said Justin Urquhart Stewart, investment director at 7 Investment Management in London.
'Investors will now retreat to the trustworthy banks, though that's not a phrase that trips off the tongue easily nowadays.'
Asian and European stock markets tumbled as the worries about Lehman counterparty risk and further financial market turmoil sent investors scurrying for safe havens such as gold.
The FTSEurofirst 300 index of leading European shares fell over 3 percent, led by falling bank stocks such as UBS, down over 7 percent.
Shares in US banks trading in Frankfurt tumbled, with Lehman down 85 percent and Morgan Stanley, Citigroup and others all in retreat.
Merrill's shares offered a rare bright spot and its Frankfurt-based shares jumped 38 percent. Bank of America said it had agreed to buy Merrill in an all-share deal for the equivalent of $50 billion, or $29 a share, almost $12 a share above Friday's closing price.
Lehman said it filed for Chapter 11 protection and was attempting to sell assets, becoming Wall Street's highest-profile bankruptcy since junk bond specialist Drexel Burnham Lambert succumbed in 1990. It followed three days of talks between bank CEOs and regulators at the Fed's fortress-like Manhattan building, showing Wall Street and Washington accepted decisions on priority and need were needed in the face of the credit crisis and U.S. housing bust.