Lehman Brothers goes bust

15 September 2008 / by Rebecca Sargent
The US's fourth largest investment bank, Lehman Brothers has admitted defeat and announced that it intends to file for bankruptcy protection.

The news has reportedly sent ripples through the European and Asian stock markets as confidence in the world's economy falls further. The dollar has also fallen against the Euro and the FTSE 100 fell by as much as 3 per cent this morning.

US bankers and Government officials have spent the weekend debating the future of Lehman Brothers, following its announcement of quarterly losses of almost $4billion.

Since the announcement, other leading US investment banks have been called upon for a bail out, with rumours circulating and the Bank of America and Barclays named as potential buyers if all else fails.

However, disaster struck last night when Barclays pulled out of the deal after it failed to secure backing from the US Government. As a result, the bank has today announced that it will be filing for a chapter 11 bankruptcy petition.

The chapter 11 petition will allow Lehman Brothers time to reorganise and come up with a plan that will allow it to pay its creditors over time. Earlier this month saw the emergency securitisation of US mortgage giants Fannie Mae and Freddie Mac and worse is still to come for the US economy according to experts.

Sub-prime mortgage lending, which started in the US is causing havoc on the worldwide economy, and the true effects are only just starting to filter through as Lehman Brothers had $85billion of 'bad investments' including £42billion in real estate.

The call for bankruptcy protection will be made in order to "protect its assets and maximise value", it may also offer some comfort to the 24,000 that Lehman Brothers employs worldwide as "motions include requests to make wage and salary payments and continue other benefits to its employees."

The bank's failure follows that of Bear Stearns earlier this year which saw the Government bail it out, however, the US Government is not prepared to do the same for Lehman Brothers as the prospect of other banks going the same way becomes a real possibility.

© Fair Investment Company Ltd