Bankruptcy protection for Lehman Brothers

Bankruptcy - Fall of lehman

Bankruptcy - Fall of lehman

  • What happened?

Bankruptcy showed its ugly face once more, announcing a major slump for the global markets.

  • Who triggered the incident?

Lehman Brothers, the banking titans; their declaration of going bankrupt last Monday made Merrill Lynch (the Wall Street rival) suffer a new financial tumult.

  • What are the reasons behind?

The fall of the Lehman Brothers occurred as a result of massive financing of bad loans. The decision of declaring a bankruptcy by the Lehman Brothers was taken after every form of negotiations failed for arranging a rescue.

  • The Stats

§ Lehman’s loss is estimated at 3.9 billion dollars. The fiscal third quarter went down because of fresh write-downs on mortgage assets.

§ Bank of America is planning to buy Merrill Lynch for 50 billion dollars. Bank of America’s new position as the largest brokerage involves 20,000 advisers and client assets amounting to 2.5 trillion dollars.

  • Counter measures taken

US Federal Reserve, Bank of England and European Central Bank have pushed colossal amounts (in dollars) into the financial markets.

  • The Aftermaths

§ The fallout made Bank of America take Merrill Lynch over; the deal being closed at 50 billion dollar.

§ AIG, the insurance giant’s own crisis made them head for a massive emergency loan.

§ A 70 billion dollars global emergency fund has been set up by a group of banks.

§ Reassurance from the central banks failed to console the European and Asian stock markets and a three to five percent plunge made the dollar fall drastically from its previous value.

· Who’s saying what

§ Marcus Droga (Associate Director, Macquarie Private Wealth) to Dow Jones Newswires: “You’ve probably seen more in one day of financial history than we’ve seen since the great crash of 1929. I’m not suggesting the US market will crash tonight, but in terms of landmark events, it’s a historic day.

§ Federal Reserve: “We are working to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution.”

§ Michael Panzer (author, Financial Armageddon): “It seems clear that a category five storm is making landfall in the US financial system and a lot of very messy stuff is hitting the fan”.

§ Henry Paulson (Treasury Secretary): “The actions taken will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets.”

§ Lehman: “The bankruptcy was authorized by its board of directors and will take place at the US Bankruptcy Court for the Southern District of New York Monday. The bank was acting in order to protect its assets and maximize value. But customers of Lehman Brothers, including customers of its wholly-owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts.

· Who’s doing what:

§ The European Central Bank pumped in 30 billion euros i.e. 43 billion dollars, in hope to keep the financial markets safe from the aftereffects of the Lehman collapse.

§ Bank of England has put in 6.3 billion euros i.e. 9.0 billion dollars to keep the short-term financial markets safe from potential credit crunch.

· Shockwaves in financial Markets due to Lehman Brothers bankruptcy

According to the analysts, Lehman’s bankruptcy shall make the global credit crunch worsen, since it shall impact directly a range of companies dealing with the Wall Street giant, though the Deutsche ministry of finance claimed the situation as a manageable one. However, if the shockwave was such a meager one, then why AIG is trying for 40 billion-dollars as a bridge loan? It can well spell its damnation!

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