Investors in the participatory note (PN) account of Lehman Brother’s Indian arm shifted their positions to rival firms amid media reports that Korea Development Bank is “considering” an investment in the fourth-largest US securities firm.
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Such inter-PN account transactions can be a tell-tale sign of a possible shake-out of an overseas bank. It may be recalled that a series of such deals also took place a day before Bear Sterns had to be offered a lifeline by the US Fed.
Such transactions do not have any impact on the stock price. What it means is that investors who are holding shares in the PN account managed by Lehman are now shifting their assets to PN accounts managed by other SEBI-registered foreign portfolio managers.
The Fed and major investment bankers have already spent 2 days trying to find a solution.
A third meeting will held today (Sunday).
Major players like Bank of America and Barclays are interested in entirely buying out Lehman Brothers, but only if Fed financially supports the move.
However, Fed doesn't seem in favour of financing any such deal.
An alternative solution can be that Bank of America or Barclays takes over the good assets of Lehman Brothers;
and the bad assets are hived-off as a separate entity. This "bad asset" entity will be funded by most major financial firms.
If a solution isn't found today. markets may come again under pressure tomorrow.
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Other Wall Street firms would try to inject some capital into that "bad bank" so that a flood of bad assets doesn't deluge the market, damaging the value of similar assets held by other banks and insurers, according to the report. The banks are also looking for the government to somehow support the bad bank.
An earlier story in the Journal reported that Treasury Secretary Henry Paulson has made it clear to participants in the talks, called Friday by the New York Federal Reserve, that no government bailout for Lehman should be expected.
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Citing people familiar with the matter, the Journal said Bank of America, until today considered Lehman's most likely savior, seems to be less interested in a deal. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, the Journal said.
Lehman Brothers Holdings Inc. moved closer to filing for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the U.S. securities firm and Wall Street prepared for its possible liquidation.
Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out first, contending it couldn't obtain guarantees from the government or other Wall Street firms to protect against potential losses on Lehman's assets. Bank of America withdrew about three hours later, according to a person with knowledge of the talks. Banks and brokers began consolidating trades in which Lehman is involved to minimize the impact of a possible bankruptcy filing tonight.
Lehman Brothers Going The Bear Stearns Way?
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