Sunday Headlines

I waited all weekend to write this article. I thought that I might report about a complicated transaction, where Lehman Brothers would be split into a “good bank-bad bank” structure. I would be able to discuss how interesting it was that Barclays, a UK institution ended up with the good stuff, while all of the large US players ended up with the crud. At 7:30 pm, there is no deal to save Lehman Brothers, but there is another mega-merger on the table as well as a potential shake up at a large insurer.

Starting with the 158-year-old Lehman, we went from too many suitors to too few. BOA and JC Flowers/CITIC bowed out, leaving Barclays as the sole contender on Sunday morning. But according to the Wall Street Journal, Barclays stepped aside when it became clear that the government was not willing to be involved in a transaction. This left a dark path for Lehman—an “orderly” liquidation, managed by the law firm Weil, Gotshal & Manges LLP, which was engaged to prepare a potential bankruptcy filing.
According to the WSJ, “if Lehman files, the firm's brokerage units would have to enter a Chapter 7 liquidation, in which a court-appointed trustee would take over, liquidate the firm's assets and get Lehman customers back their money. In general, securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors.” If you are a customer of Lehman, it is likely you will start to hear about Securities Investor Protection Corporation (SIPC). If sufficient funds are not available in the firm’s customer accounts to satisfy claims within specific limits, the reserve funds of SIPC are used to supplement the distribution, up to a ceiling of $500,000 per customer, including a maximum of $100,000 for cash claims. Additional funds may be available to satisfy the remainder of customer claims after the cost of liquidating the brokerage firm is taken into account.
A funny thing happened on the way to Lehman’s demise…two other firms started courting one another. I found out about this while at a wedding shower—a friend checked his Blackberry at 4pm and announced, “The wedding of Barclays and Lehman is off, but there could be one for Bank of America and Merrill Lynch!” WHAT? After looking hard at Lehman, BOA brass thought that a better match might be found in Merrill. The information was sketchy and maybe the whole deal will fall apart, but according to a variety of sources, Merrill's board was reportedly meeting to approve an offer at $29 a share, which would value the firm above $40 billion, a nice premium to Friday’s close of $17.
Finally, another financial company made the Sunday headlines glow. Again, according to the WSJ, AIG plans to disclose a comprehensive restructuring today that is “likely to include the disposal of major assets including its aircraft-leasing business and other holdings, according to people familiar with the matter…the moves follow a 31% drop in AIG's stock price on Friday amid concern that its capital base isn't sufficient to cover its obligations.” Boy, who ever said that Sunday was a day of rest? Stay tuned!