Lehman Bankrupt, Merrill Forced to Sell

123jump.com Staff
15 Sep, 2008
New York City

The U.S. financial landscape was drastically altered over the weekend as the credit crisis deepens. The slow motion crisis finally engulfed Lehman Brothers as it filed for bankruptcy. Merrill Lynch was forced to sell the company to Bank of America at a substantial discount. AIG hunts for cash but may come up empty handed as international investors stay away from the U.S. companies. European markets fell between 4% and 5% and few Asian markets that were open on Monday dropped 4%.

[R]10:00AM New York – Global markets sell-off. Lehman files for bankruptcy protection. Merrill Lynch carried out forced sale to Bank of America and AIG faces its liquidity issues. AIG plunges 50%.[/R]

The global markets sell-off continued as investors around the world grapple with the deepening U.S. financial market crisis. Lehman Brothers filed for bankruptcy protection and Merrill Lynch has agreed to be sold to Bank of America for $50 billion or $29 a share. AIG plunged 50%.

Lehman ((LEH)) traded 93% or $3.39 lower to 26 cents but Merrill Lynch ((MER)) rebounded $4.10 or 24% to $21.15. Bank of America declined 12% or $3.90 to $29.86.

The U.S. financial markets crisis took a sharp turn for the worst as two of the three large companies, once deemed as the pillars of the society faced their demise and one furiously looks for additional cash. Lehman Brothers after failing to find a buyer and under the weight of mounting losses in mortgage securities portfolio was forced to file chapter bankruptcy protection.

Merrill Lynch, relatively healthy institution, but still suffering of lack of understanding of the level of risk the company carried on its balance sheet was forced in a bargain basement sale to Bank of America. In the last one year Merrill had sold stocks to Middle East and Asian investors at price as high as $48 a share and agreed to sell to the company to Bank of America at $29 a share.

In stock swap deal that Bank of America will pay for each share of Merrill with 0.8595 of its stock and valued the troubled broker 60% lower than a year. Still, some executives on the Wall Street deem that Merrill got a good price and could have suffered severe price fall in coming months. The deal was apparently hammered out in less than two days over the weekend and reported by Ticker.com, a sister publication.

The list of large independent brokerage houses has now shrunk to Goldman Sachs and Morgan Stanley only as they both try to explain how different they are from Bear Stearns and Lehman Brothers.

Goldman Sachs ((GS)) dropped $9.20 to $145, Morgan Stanley declined $3.99 to $33.23 and AIG ((AIG)) lost 49.75% of $6.13 to $6.01.

Asian Markets Review

ASX 200 index in Australia decreased 86.10 or 1.76% to close 4,817.70. The KL Composite index in Malaysia decreased 12.40 or 1.19% closed to 1,031.63. Markets in Tokyo, South Korea and Hong Kong were closed today.

SET index in Thailand closed lower 11.95 or 1.83% to 642.39 and JSE Index in Indonesia decreased 84.81 or 4.70% to 1,719.25. The Sensex index in India decreased 469.54 or 3.35% closed to 13,531.27.

Europe Markets Review

In London FTSE 100 Index traded lower 284.30 or 5.25% to 5,132.40, in Paris CAC 40 Index decreased 236.80 or 5.47% to 4,095.86 and in Frankfurt DAX index traded lower 246.23 or 3.95% to 5,988.66. In Zurich trading SMI decreased 316.21 or 4.38% to 6,899.29.