Update: Dow slips below 11000, Lehman Brothers files for Bankruptcy protection, Merrill bought by BOA
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Update: The Dow Jones is down 500 points and closed below 11,000 erasing about $700 billion in shareholder wealth.
In a shocking turn of events over the weekend, financial firm Lehman brothers has filed for federal bankruptcy protection. The news comes within days of Lehman assuring Wall Street and investors of its survival, and putting itself up for sale on Thursday. Possible suitors included Bank of America, Barclays, Goldman Sachs, HSBC, Wells Fargo, and some private equity firms. I hope the SEC and federal regulatory authorities are watching as any assurances days before a known impending bankruptcy filing amounts to misleading investors and the public.
In another major development, Merrill Lynch was acquired by Bank of America in a $50 billion all-stock transaction. The stock has sunk from a 53 week high of $78 and is currently trading at $20.70, up 21% from it’s previous close at $17.05 on Friday.
Lehman and Merrill’s woes are now out in the open just six months after the collapse of Bear Stearns and almost 1 year since the beginning of the credit crisis that is now plaguing the financial industry. The Dow Jones was down almost 300 points in opening and has recovered slightly. It’s down 266 points or 2.3% from it’s previous close on Friday.
The government recently bailed out troubled entities Freddie Mac and Fannie Mae and took them under federal control to assuage investors and international markets. However, it seems unlikely that a similar action will be taken by the Federal government in this case. President George W. Bush has signaled that the government would not continued 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 big question now is who is next on the list? The news is sure to send the market and investors in a state of panic and extreme caution and further delay any likelyhood of a near term economic recovery.
