The investment bank Lehman Brothers Holdings Inc. spent Thursday energetically shopping itself to potential buyers — among them Bank of America Corp. — just a day after insisting it had found a way to patch up its massive real-estate-related losses.
Given the firm’s deep financial troubles, a deal of any sort is far from certain, according to people familiar with the situation. In addition, prospective buyers, which also could include Barclays PLC, would likely want the U.S. government to help shield them from future losses from any such transaction, these people said, as happened in March, when Bear Stearns Cos. was forced into a deal to be acquired by J.P. Morgan Chase & Co. In that deal, the federal government agreed to absorb as much as $29 billion in potential losses.
The Federal Reserve and Treasury Department have been working with Lehman to help resolve the bank’s troubles, including talking to potential buyers, according to people familiar with the matter. Federal officials currently aren’t expected to structure a bailout along the lines of the Bear transaction or this past weekend’s rescue of mortgage giants Fannie Mae and Freddie Mac.
Resolving the mess at Lehman could help stem a wave of pessimism that the U.S. financial system faces the prospect of much deeper turmoil because of bad loans and the weak economy. Late Thursday, Washington Mutual Inc. rushed out some details about its third-quarter results in hopes of ending a 34% slide in its stock price so far this week.
In better times, Lehman’s chief executive officer, Richard Fuld Jr., routinely vowed he would never sell the company, which he has run for nearly 15 years and which ranks as the oldest major firm on Wall Street. Now, however, he is scrambling to find a way out before nervous clients pull back from trading with the firm or its lenders cut back on their credit lines.
In a matter of just days, Lehman’s fate has spun out of the firm’s control. On Wednesday, it announced a turnaround plan aimed at making it possible for the beleaguered firm to survive as a smaller organization freed from the toxic real-estate assets that led to $6.7 billion in losses in the past two fiscal quarters.
However, that strategy — ranging from spinning off commercial real-estate to selling a stake in Lehman’s lucrative investment-management division — failed to halt a slide in Lehman’s stock price.
After the close of trading on Wednesday, the rating agency Moody’s Investors Service put Lehman’s credit rating on review, saying it would be lowered from its current A2 level unless Lehman can negotiate “a strategic transaction with a stronger financial partner.” A downgrade by Moody’s or Standard & Poor’s would drive up Lehman’s borrowing costs, making it tougher to operate.