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Friday, September 12, 2008

Clock is Ticking for Lehman

Lehman Brothers is actively seeking out bidders for the beleaguered firm, according to numerous news reports that started to surface late Thursday.

NEW YORK ( -- As Wall Street continues to speculate about the fate of Lehman Brothers, shares of the besieged firm continued to see their value evaporate Friday.

Just a day after the company's stock plummeted 42%, Lehman (LEH, Fortune 500) shares fell 14% in early trading.

This week has marked one of the most difficult periods in the Lehman Brothers storied 158-year history.

Amid rabid speculation about the firm's health and possible asset sales, the company delivered its results more than a week in advance on Wednesday, owning up to a nearly $4 billion quarterly loss - its biggest ever since the company went public in 1994.

Hoping to silence its critics, the company also revealed a sweeping restructuring plan aimed at cleaning up the company's balance sheet, which included spinning off some of the vast majority of its commercial real estate assets, plans to sell a majority stake in its investment management division, and cutting in the company dividend.

Those efforts, however, did not do enough to convince either investors or analysts that top executives, including Chairman and CEO Richard Fuld Jr., were doing enough to help right the ship.

Growing urgency

Following a string of downgrades, Lehman shares went into another free fall Thursday, falling some 42%.

The continued slide, as well as the looming threat of downgrades by the credit rating agencies and nervous long-time customers, appears to have led to an increased level of urgency for the bank to do something.

Numerous reports surfaced late Thursday suggesting that the investment bank was actively seeking a buyer for the whole firm.

The company reportedly reached out to a number of suitors including Bank of America (BAC, Fortune 500) and the British bank Barclays (BCS), which had been rumored earlier this year as a possible bidder. Spokespeople for Bank of America and Barclays both said they had no comment on the report.

Dick Bove, an equity analyst with Ladenburg Thalmann who covers the banking industry, said he believed that Bank of America could emerge as the victor were Lehman to strike a deal.

"There is a natural fit between the two companies," Bove wrote in a research note.

Speculation also surfaced that private equity firms may somehow be involved in the bid for Lehman. Current regulatory restrictions prevent prevent buyout firms from owning a bank outright, although the Federal Reserve has eyed loosening those restrictions as bank failures pile up.

Government's role

While federal regulators have remained tight-lipped so far, it seems pretty certain that they are keeping a close eye on Lehman's fate, and may even be directly involved in those discussions.

The Washington Post reported late Thursday afternoon that both the Treasury Department and Federal Reserve were helping to engineer a sale of the investment bank. The Fed was not immediately available for comment.

The Treasury Department told CNN late Thursday that it "is monitoring markets and remains in contact with market participants."

Still, it seems doubtful that regulators would help bail out Lehman Brothers as they did when Bear Stearns nearly collapsed before being acquired by JPMorgan Chase (JPM, Fortune 500) in mid-March.

Top banking regulators, including the Federal Reserve, faced heavy criticism from lawmakers following the deal for putting taxpayer funds at risk by essentially agreeing to back $29 billion worth of losses on Bear Stearns' portfolio.