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Lehman fails, Merrill sold, is AIG next?

Marketplace Staff Sep 15, 2008

Lehman fails, Merrill sold, is AIG next?

Marketplace Staff Sep 15, 2008


Scott Jagow: After a string of government bailouts, we’re back to survival of the fittest on Wall Street. Two of Wall Street’s biggest names are kaput. First of all, investment bank Lehman Brothers says it’s filing for bankruptcy. No one would buy the company, and the government did not step in. Number two, Merrill Lynch is getting bought by Bank of America. That deal was announced in the middle of the night. Number three, insurance company AIG might be the next trouble spot. There’s a lot to sort out here. We turn to our New York Bureau Chief Amy Scott. Amy, let’s start with Lehman. Why didn’t anyone want buy it?

Amy Scott: Well, talks fell apart over the weekend, it seems largely because the government wouldn’t provide the kind of financial backing it did with the takeover of Bear Stearns by JPMorgan Chase about six months ago. The British bank Barclay’s backed away from a deal yesterday, and another potential buyer, Bank of America, ended up doing a deal with Merrill Lynch.

Jagow: Well why did that deal go through and nothing happened with Lehman?

Scott: Merrill was having its own troubles last week. It saw what was going on with Lehman Brothers stock, and CEO John Thain saw that and saw the writing on the wall and managed to pull off a deal before Merrill’s own stock collapsed. Merrill agreed to be sold to Bank of America for about $50 billion or $29 a share, so shareholders really got something out of that deal that may not have happened had the week progressed without some kind of rescue.

Jagow: And it all happened without a government bailout involved, which is what we saw with Bear Stearns.

Scott: That’s right.

Jagow: Now AIG, the insurance company, there’s talk about trouble there and how it’s connected to these investment banks. What is the connection?

Scott: Right, well, AIG has lost some $18 billion in the last three quarters and that’s largely from its own investments in risky real estate and mortgages. Its stock fell more than 30 percent on Friday, and it’s likely to announce some kind of restructuring plan where it will raise some capital and sell some assets. And AIG is reportedly seeking some help from the Federal Reserve as well.

Jagow: What do we know about how this is going to affect, first of all, the landscape on Wall Street in investment banking. Let’s start with that.

Scott: Well, yeah. With Bear Stearns taken over six months ago, now Lehman and Merrill Lynch, this leaves just two of the big independent brokerage houses standing, Goldman Sachs and Morgan Stanley. And you can be sure investors are scrutinizing them today. The Fed is taking some additional steps to calm the markets by saying it will accept a wider array of securities as collateral for its loans. But, you know, certainly the former Fed Chairman Alan Greenspan in an interview yesterday with ABC called this a once-in-a-half-century, perhaps once-in-a-century type of event, and the landscape will be different in ways we’re only just beginning to understand.

Jagow: Gees, and there’s got to be a huge impact here on the people who work on Wall Street, or don’t now work on Wall Street.

Scott: That’s right. Merrill Lynch has 60,000 employees. Lehman has 25,000. You know, we don’t know what’s going to happen to those employees yet, but it’s likely there will be some heavy job losses on Wall Street.

Jagow: All right, Amy Scott in New York, thank you.

Scott: Thanks, Scott.

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