Wall Street scrambles as Lehman, Merrill falter

NEW YORK - In a stunning reshaping of America's financial landscape, two venerable Wall Street firms fell from the shock waves of a credit crisis that has plunged the financial system into turmoil, as stocks tumbled across the globe Monday in response.

Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 protection in the biggest bankruptcy filing ever and said it was trying to sell off key business units. Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in a $50 billion all-stock transaction.

Stock markets fell precipitously and Treasury bond prices soared as investors reacted to some of the most dramatic economic news in modern U.S. history. The Dow Jones industrial average closed down 500 points in their worst point drop since the September 2001 terrorist attacks.

The developments took place as U.S. voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. Presidential candidates John McCain, a Republican, and Democrat Barack Obama, immediately called for stricter financial regulation.

Obama called the news "the most serious financial crisis since the Great Depression" of the 1930s.

President George W. Bush meanwhile signaled that the government would not continue to bail out Wall Street, saying only that "we are working to reduce disruptions and minimize the impact of these financial market developments on the broader economy."

"The policymakers will focus on the health of the financial system as a whole," Bush said during the White House appearance with visiting Ghanian President John Kufuor.

The demise of the independent Wall Street institutions comes six months after the collapse of Bear Stearns and 14 months after the beginning of the credit crisis, sparked by bad mortgage finance and real estate investments.

Ominously, American International Group Inc., the world's largest insurance company, was asking the Federal Reserve for emergency funding and planned to announce a major restructuring Monday.

Consortium offers pool of funds
A global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies. The aim of the bank consortium, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Europe's major central banks also moved quickly to calm markets, pumping billions of euros and pounds into the financial system to shore up confidence.

The European Central Bank said it received 51 bids for $127 billion, or 90.3 billion euros, on its one-day tender of $42.6 billion, or 30 billion euros, with a bid rate of 4.25 percent, a clear sign that demand for cash is over the top.

Similarly, the Bank of England in London offered nearly $9 billion, or 5 billion pounds, in a three-day auction that drew bids for $43 billion, or 24.1 billion pounds, or nearly five times the amount that was offered.

The Zurich-based Swiss National Bank said it was also providing liquidity in "a generous and flexible manner" at an overnight rate of 1.9 percent, but wouldn't say how much was on offer.

Global markets take hit
Still, the FTSE-100 share index was down 4.07 percent in London, the Paris CAC-40 was off 4.5 percent and Germany's DAX 30 index of blue chips sagged 3.23 percent. India's Sensex tumbled 3.4 percent, Taiwan's benchmark index plummeted 4.1 percent and Singapore dropped 3.2 percent.

Lehman fell under the weight of $60 billion in soured real estate holdings, and the credit market's dislocation ultimately forced it to seek court protection. The credit crisis has caused global banks to write down more than $300 billion in asset value since last year, and caused the shotgun sales of Merrill Lynch & Co. and Bear Stearns Cos.

Lehman's bankruptcy filing marks the end of a Wall Street firm that started the U.S. cotton trade before the Civil War and financed the railroads that built a nation.

The company's roots began in 1844 when Henry Lehman immigrated from Rimpar, Germany to Alabama, where he established a dry goods store that catered to local cotton farmers in Montgomery. Lehman Brothers evolved from merchandising to a commodities broker, and then later into underwriting where the firm helped finance construction of the Pennsylvania Railroad, among others.

Chairman and Chief Executive Richard S. Fuld, who joined Lehman as a college student in 1969 and was the longest serving CEO on Wall Street, now has the dubious task of winding down the company's $639 billion of assets. It has about 25,000 employees worldwide, joining the swell of unemployed bankers and traders hurt by the credit crisis.

Many Lehman employees seen entering its headquarters in midtown Manhattan tucked their chins down to avoid talking to the media and others who had lined up behind metal barriers in front of the building.

Lehman's filing is the biggest corporate bankruptcy in history in terms of assets held, Mike Bickford of Jupiter eSources said. The next biggest bankruptcy was Worldcom Inc., with $126 billion in assets, and Enron Corp., with $81 billion. The figures are not adjusted for inflation.

In London, the administrators who have taken control of key Lehman Brothers' businesses in the United Kingdom said it could take years to dispose of the company's assets to pay off creditors.

Tony Lomas of PriceWaterHouseCoopers said liquidating those assets will be more complex than disposing of Enron's European assets, which took six years after the U.S. energy company's 2001 bankruptcy.

Lehman Brothers' filing came after all potential buyers walked away. They were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized mortgage giants Fannie Mae and Freddie Mac.

Raw emotions
Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"

Lehman employees streaming into its European headquarters in London's Canary Wharf financial district were met by television cameras, a scrum of reporters and a beefed-up security team.

"I guess times are tough and we've got to face the music. ... Everyone is worried about their job, it's inevitable," said one banker entering the building, adding a company-wide meeting had been set for Monday morning.

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