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"We have pulled out," the representative said, noting that, under the deal structure currently being contemplated in emergency meetings at the Federal Reserve Bank of New York headquarters in downtown Manhattan, Barclays would have had to take on billions of dollars worth of toxic mortgage-backed securities, potentially exposing the London-based bank to major losses. "We cannot do that without a shareholder vote," the representative added. Logisitically, he said, that would take too long. Barclays, which reeportedly had been interested in buying all of Lehman Brothers in a bid to bolster its Wall Street presence, did not receive guarantees from either the U.S. Government or other Wall Street institutions, which would have backstopped the London-based bank's acquisition of Lehman's assets, including a large portfolio of troubled mortgage-backed securities. Without the guarantee, the risk of the deal was too great. The Barclays spokesperson did not rule out a return by Barclays to the bargaining table, but said that, in the absence of a third-party guarantee, it was impossible to see how the U.K.-bank could participate. Press reports Sunday indicated that another rumored bidder, Bank of America Corp., also said that it wasn't interested in bidding for Lehman without a government guarantee. The dramatic turn of events ratcheted up pressure on markets ahead of the Monday morning open in Asia. Market watchers expect Monday trading to be tumultuous if the crisis at Lehman remains unresolved. "It could be 1929," said one industry source, noting that no one really knows what weakness the liquidation of Lehman Brothers could expose in the global financial system, and that fear itself could cause havoc in the markets. Sunday marked the third day of emergency meetings at the New York Fed. Starting on Friday evening, top government officials met with the leaders of the world's top banks to find a way to unwind Lehman Brothers in a controlled manner. New York Fed president Timothy Geithner, Treasury Secretary Henry Paulson, and Securities and Exchange Commission Chairman Christopher Cox were meeting withMorgan Stanley Chief Executive John Mack, Merrill Lynch & Co. Chief Executive John Thain, J.P. Morgan Chase CEO Jamie Dimon, Goldman Sachs Group CEO Lloyd Blankfein, Citigroup Inc. head Vikram Pandit and representatives from the Royal Bank of Scotland Group plc and Bank of New York Mellon Corp. attended the meeting, along with Credit Suisse CEO Brady Dougan, Morgan Stanley Chief Financial Officer Colm Kelleher, Citigroup Chief Financial Officer Gary Crittenden, UBS AG Chief Risk Officer Thomas Daula, J.P. Morgan investment bank co-head Steve Black and Goldman co-president Gary Cohn. Although the talks apparently focused mainly on finding a way to either sell Lehman or liquidate the bank without causing major market disruptions, press reports suggested Saturday that the talks had widened to include discussions of other embattled financial services companies,Washington Mutual Inc. and AIG, both of whom have also seen their stock prices erode amid a deterioration in market confidence and continuing troubles related to the housing market and mortgage-backed securities. Lehman has generated most of the concern in recent weeks. The investment bank has seen its stock price plunge and its market capitaliztion drop to $2.5 billion as investors questioned Lehman's ability to survive as an independent firm. On Sept. 10, Lehman preannounced its third-quarter earnings and unveiled a $3.9 billion loss, as well as a recapitalization plan that involved spinning off a portfolio of toxic mortgage securities and selling off a majority stake in its investment management division. That did little to stop the stock's slide as ratings agencies said
that they would downgrade the firm -- and hence raise its borrowing
costs and make it virtually impossible for it to continue to do
business -- if it did not find a buyer. By Thursday's market close,
Lehman's shares were trading at $4.22 a share. The bank's stock began
the week at $17.53. The bank's stock closed the week at $3.59. By Friday, reports had begun to circulate that Lehman's CEO Richard S. Fuld Jr. had been shopping the firm, and a consortium of Bank of America, private equity firmJC Flowers & Co. LLC and Chinese sovereign wealth fund China Investment Corp. were weighing a joint bid for the besieged investment bank. Also mentioned as a possible suitor was London-based Barclays. It was always unclear, however, whether an actual bid would surface in the absence of U.S. government backing, something that several sources said is unlikely because the Department of the Treasury and the Federal Reserve do not want to be seen as too willing to prop up struggling financial firms. There were also reports over the weekend, that bidders had emerged for Lehman's investment management division, with reports stating that private-equity firms Bain Capital and Clayton Dubilier & Rice emerging as contenders for the unit, valuing it at around $5 billion. - Vipal Monga Categories Deal Video
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Urgent efforts to forge a takeover of Lehman Brothers Inc. hit a major stumbling block Sunday afternoon as Barclays plc, which emerged as the leading suitor for Lehman over the weekend, decided to walk away from the deal, according to a bank spokesman.
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