Sunday, September 14, 2008
Unbelievable times... Bear Sterns went under, Freddie Mac and Fannie Mae went under...is it now Lehman's turn?! It is a rhetoric question. The difference between the former two cases is that both Bear Sterns and Freddie and Fannie were bailed out by the US government, whereas the government is refusing to provide guarantee to the potential buyer of Lehman, British bank Barclays which now confirmed to have walked away from the discussions due to refusal. Given the scale of Lehman's liabilities, it is absolutely a critical time to watch how the developments unfold.
What I fear most is the potential impact of Lehman's insolvency. What happens to the creditors of Lehman? Any sizeable bank has, potentially, a multi billion counterparty risk on Lehman. Is this going to lead to a chain effect across the industry? Click here for more.
As I am writing this, I am reading news that Merrill Lynch is in talks with Bank of America to be acquired (See here).
I can't wait when the markets open in the morning...
UPDATE 1: 5.20am - 15 September 2008 London time
Only a few hours after the initial reports that ML was in talks with Bank of America to be acquired, NYT report that Bank of America bought ML for $50bn. If I were a ML shareholder I would have run with the money, but the issue here is that it is an all share purchase and hence shareholders can't lock in to the profit. I think BoA paid too much for ML.
So, what is next? AIG seems have nearly arrived too...