A day after Lehman Brothers sought to assure Wall Street that it could survive on its own, the beleaguered investment bank, urged on by...
NEW YORK — A day after Lehman Brothers sought to assure Wall Street that it could survive on its own, the beleaguered investment bank, urged on by federal officials, bowed to mounting pressure Thursday and put itself up for sale.
As confidence in Lehman continued to drain away, the bank, one of the oldest names on Wall Street, reached out to several potential acquirers, including Bank of America and the big British bank Barclays, according to people briefed on the negotiations. A deal could be reached within days.
In each case, the suitors are seeking help from the Federal Reserve to make an acquisition palatable. They want the Fed to guarantee a part of Lehman’s troubled assets, these people said, similar to the way it backstopped the emergency sale of another foundering bank, Bear Stearns, in March.
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But while the Treasury Department and Fed worked to broker an orderly sale of Lehman, it was unclear whether the Fed would stand behind any deal, particularly after the Bush administration took control of the nation’s two largest mortgage finance companies, Fannie Mae and Freddie Mac, only days ago.
The test will come if Lehman’s potential buyers balk at a purchase without the Fed’s backing.
If that were to happen, federal officials would be left to evaluate what risks a sudden collapse of Lehman might pose to the financial system.
The rapid decline of Lehman underscores that investors remain unnerved, with rumors about an institution’s problems quickly becoming a self-fulfilling prophecy, as other banks seek to distance themselves to limit their financial exposure.
Even so, while Lehman’s stock fell $3.03 Thursday to $4.22, leaving it down nearly 94 percent this year, the shares of other financial companies, including Seattle-based Washington Mutual, stabilized after days of losses.
Lehman has few options.
Its stock’s relentless decline has convinced Richard Fuld Jr., Lehman’s hard-charging chief executive, that the time has come to let go.
“He’s shellshocked but he knows he has to sell,” said one person who recently spoke to Fuld.
Lehman tried to convince investors Wednesday it could survive on its own by selling divisions and spinning off commercial real-estate assets.
Spokespeople for Lehman, Barclays and Bank of America all declined to comment.
Bank of America is still attempting to integrate its purchase of Countrywide, the giant home-mortgage lender, but has long considered buying a New York-based investment bank.
Barclays has long insisted it planned to build out its own investment-banking presence in the United States, but Lehman’s price may prove too cheap to resist, people close to the matter said.
Other bidders could include private equity groups like Kohlberg Kravis Roberts, which already was planning to bid for Lehman’s investment-management division.
However, the Federal Reserve is thought to prefer that Lehman be bought by a publicly traded bank with a more stable capital base.
Prospective suitors for Lehman’s investment-management unit have discussed securing financing for a deal with Bank of America, JPMorgan Chase, Goldman Sachs, Credit Suisse and others, people in the process said.
Should Lehman be sold by the weekend it would complete a slow-burn collapse that began when the credit crisis started to take hold last summer.
Lehman, whose roots date to its founding as an Alabama cotton exchange in the 1850s, spent years building a giant mortgage business that not only issued home loans, but also wrapped them in securities and sold them to investors who at the time were desperate for any investment offering a decent return.
In 2006, Lehman was the top underwriter of subprime-mortgage securities with an 11 percent market share, according to Inside Mortgage Finance.
As markets started to tumble in August, Lehman moved quickly to respond to the crisis, shuttering BNC Mortgage, its home-lending unit focused on subprime borrowers and laying off 1,200 people. Last September, it was the first bank to report third-quarter earnings and surprised investors with the positive results.
Early on, many Lehman executives believed the crisis would be short-lived.
“It’s not smooth sailing,” Lehman finance chief Christopher O’Meara, said, “but the worst of this credit correction is behind us.”