Lehman Brothers files for bankruptcy, Bank of America buys Merrill (Lead)

September 15th, 2008 - 8:23 pm ICT by IANS  

Washington, Sep 15 (DPA) The embattled investment bank Lehman Brothers filed for bankruptcy Monday, hours after financial services firm Merrill Lynch agreed to sell itself to Bank of America.Negotiations throughout the weekend failed to produce a buyer for the venerable Lehman Brothers, leading to the bankruptcy filing.

News of the developments in the US banking sector sent stocks in Asia and Europe into a nosedive.

In a deal announced late Sunday, Merrill Lynch, a major US stock brokerage and investment bank, agreed to be bought out by Bank of America Corp for $50 billion in stock. The takeover comes as the Lehman’s troubles dragged most other financial services stocks down, too.

The Lehman collapse follows more than a year of turmoil arising from the collapse of the US housing bubble and a high rate of mortgage defaults, which undermined Wall Street’s market for mortgage-backed securities.

Meanwhile, the US Federal Reserve Board announced late Sunday that it will make more loans available to US banks, and will accept a wider array of securities as collateral for such lending.

“We have been in ongoing discussions with market participants, including through the weekend, to identify potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses,” Federal Reserve Board Chairman Ben Bernanke said in a statement.

The action was seen as a step to help calm financial markets heading into an uncertain start of trading on Monday morning in New York. Markets in Asia were already plummeting in early trading amid the worries from Wall Street.

Earlier this year, the Federal Reserve helped engineer the sale of another troubled investment banking firm, Bear Stearns. More recently, the federal government acted to take over the government-chartered Fannie Mae and Freddie Mac, which undergird the US mortgage lending markets.

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