MANHATTAN (CN) – Lehman Bros. will file for bankruptcy after Wall Street and the federal government refused to rescue it, and Merrill Lynch will sell itself to Bank of America for about $50 billion, the former U.S. financial giants said today. The unraveling of the storied investment bank and stockbroker came after years of bad bets that the U.S. housing bubble would never end. And insurance giant American International Group needs to borrow $40 billion by today, or its credit rating will be downgraded, which could force AIG into insolvency.
Lehman Bros.’ share price of $3.65 is down 95 percent this year. Merrill Lynch’s book value has tumbled by more than 50 percent.
The meltdown came after a weekend of failed negotiations, in which U.S. Treasury Secretary Peter Paulson said the government would not bail out Lehman Bros., as it did Bear Stearns and mortgage finance firms Fannie Mae and Freddie Mac.
Now analysts have their eyes on Washington Mutual, the country’s largest savings and loan, which also appears to be tottering.
“My goodness,” financial guru Peter Peterson told The New York Times. . “I’ve been in the business 35 years and there are the most extraordinary events I’ve ever seen.” Peterson cofounded the Blackstone Group, directed Lehman Bros. in the 1970s and was secretary of commerce under President Nixon.
It’s uncertain what will become of Merrill Lynch’s 60,000 employees or Lehman’s 28,000.
The official U.S. unemployment level topped 6% this month for the first time in years. The dollar sank this morning against currencies all over the world.
Bank of America, which bought tattered and much-sued subprime lender Countrywide Financial this year, now has become the biggest stockbroker and consumer bank in America. It walked away from this weekend’s talks with Lehman, as did Great Britain-based Barclays Bank, after failed efforts to cherry pick which Lehman assets they would buy, according to media reports.
Lehman Bros. has hired Weil, Gotshal & Manges to represent it in bankruptcy court.