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World watches Lehman talks

Headquartered in New York City, Lehman Brothers has seen its stock close at $3.65, an all-time low, as a buyer is sought.

Associated Press

Headquartered in New York City, Lehman Brothers has seen its stock close at $3.65, an all-time low, as a buyer is sought.

NEW YORK — The field of possible buyers for Lehman Brothers narrowed Saturday, but the parties involved in the discussions over the wounded investment bank's future were at loggerheads over how to finance the rescue.

An investment banking official said Bank of America Corp. and Britain's Barclays Plc have emerged as the front-runners for Lehman Brothers after a possible cash injection from its rival Wall Street banks and brokerages.

Top officials from the Federal Reserve and the Treasury Department and executives from several Wall Street banks met at the New York Fed's downtown Manhattan headquarters Saturday for the second day in a row try to hash out a deal to rescue Lehman Brothers.

The financial world was watching. Failure could prompt skittish investors to unload shares of financial companies, a contagion that might affect stock markets at home and abroad when they reopen Monday.

Global fears intensified Saturday that Lehman's collapse would stagger markets and undercut confidence in the U.S. financial system.

Germany's Finance Minister Peer Steinbrueck urged that a resolution be found before Asian markets open, warning ominously, "the news that is coming out of the U.S. is bad."

Discussions are expected to continue today, a spokesman for the New York Fed said. The official, who asked not to be named because the talks were ongoing, said the investment houses were balking at paying to polish up Lehman's balance sheet so Bank of America or Barclays could buy a financially clean firm.

He said the investment banks were angling for the government to provide some money, as it did when it helped JPMorgan Chase & Co. buy Bear Stearns in March, because they would get little to nothing in return for their help.

Saturday's participants included Treasury Secretary Henry Paulson, Timothy Geithner, president of the New York Fed, and Securities and Exchange Commission Chairman Christopher Cox.

Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, and Merrill Lynch & Co.'s John Thain were among the chief executives at the meeting.

Representatives for Lehman Brothers were not present during the discussions.

They gathered on the heels of an emergency session convened Friday night by Geithner — the Fed's point person on financial crises.

Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn't in attendance.

Other potential buyers could include Japan's Nomura Securities, France's BNP Paribas and Deutsche Bank AG. All have declined to comment.

Participants in Saturday's meeting were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks.

AIG, the world's largest insurer, and WaMu, the nation's biggest savings bank, have taken steep losses during the past year from risky investments. AIG's shares dropped about 31 percent on Friday. WaMu's shares shed about 3.5 percent. Shares of investment bank Merrill Lynch & Co. Inc. also lost 12.3 percent. Lehman's stock closed at $3.65 Friday — an all-time low.

World watches Lehman talks 09/13/08 [Last modified: Monday, November 7, 2011 4:41pm]
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