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Lehman Bros files for bankruptcy Lehman Bros files for bankruptcy
(about 7 hours later)
The fourth-largest investment bank in the US, Lehman Brothers, has said it will file for bankruptcy protection, amid a growing global financial crisis. Lehman Brothers, the fourth-largest US investment bank, has filed for bankruptcy protection, dealing a blow to the fragile global financial system.
The news led to sharp falls in share prices around the world, and officials took measures to reassure markets.
Lehman had incurred losses of billions of dollars in the US mortgage market.Lehman had incurred losses of billions of dollars in the US mortgage market.
The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman. Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America, the latest twist in a dramatic turn of events on Wall Street.
Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street. In Washington the US President sought to reassure markets.
Stock markets in Europe and Asia dropped sharply and the dollar tumbled against the euro and the yen as Lehman's failure raised fears about the strength of the global financial system. "In the long term I am confident that our financial markets are flexible and resilient and can deal with these adjustments", said George W Bush.
The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/meltdown_monday.html">Read Robert's blog class="" href="/1/hi/business/7616037.stm">In quotes: Lehman's demise class="" href="/1/hi/business/7615974.stm">Q&A: How it affects you Tumbling bank stocks
The FTSE 100 index of leading UK shares was down 160 points, almost 3%, at 5256.50 in early exchanges. Lehman's demise is being felt around the world:
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  • Stock markets and the US dollar have tumbled in reaction to Lehman's collapse, with banking shares hardest hit. UK bank HBOS saw its shares plummet 30%.
  • Central banks have moved to reassure markets. The US Federal Reserve has broadened its emergency lending scheme and the UK and European central banks have injected a total of about $50bn (£28bn; 35bn euros) into the financial system.
  • There are fears AIG, once the world's largest insurer, could also face collapse. It is taking steps to raise money amid reports it is seeking a $40bn emergency loan from the Fed.
  • Bank of America's move to buy Merrill in a $50bn deal means that three of the top five US investment banks have fallen prey to the sub-prime crisis within six months.
  • In the UK, accountants PricewaterhouseCoopers (PWC) have been appointed as administrators for Lehman.
Wall Street is also expected to open lower in what is likely to be a tense day of trading. 'No cash'
The Bank of England and the European Central Bank said they were monitoring money markets and stood ready to intervene if necessary. PWC told a news conference in London that it is unclear whether Lehman's UK staff will get paid the $75m (£42m) that they are owed in wages this month.
"When we took over this morning, there was no cash in the company," said Tony Lomas from PWC.
"We still don't know what the position is - we will tell staff as soon as we know if we can, or if it is appropriate to pay staff on Friday."
In response to a question from a journalist he agreed it was extraordinary for a company like this to collapse.
"What it underlines to me is the importance of market confidence," Mr Lomas said.
"If no one wants to trade with you...there's no way back."
Central bank funds
The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence Robert Peston, BBC business editor Read Robert's blogIn quotes: Lehman's demiseCentral banks intervene Calls to boost the ECB's roleAnalysis: An end to bank bail-outs?
Stock markets in Europe and Asia have dropped sharply and the dollar tumbled against the yen, the euro and the Swiss franc as Lehman's failure raised fears about the strength of the global financial system.
The FTSE 100 index of leading UK shares ended down 212.6 points or 3.9% to 5,204.2.
US shares on Wall Street also fell. Shortly after trading began the Dow Jones index was 304 points lower, or 2.7%, at 11,118.
To help stabilise the money markets, the Bank of England and the European Central Bank pumped in £5bn and 30bn euros respectively.
In addition, the Federal Reserve said that for the first time it would accept stocks owned by banks as collateral for short-term cash loans, broadening its emergency lending programme.
Talks collapseTalks collapse
The chance that Lehman Brothers could collapse increased sharply after the strongest potential buyers pulled out at the weekend. Lehman Brothers filed for bankruptcy protection after a weekend of frantic activity on Wall Street.
Barclays and Bank of America had been in talks to rescue the bank but negotiations faltered when it became clear that the US Treasury was strongly opposed to using government money to help clinch a deal. Barclays and Bank of America had been in talks to rescue the bank, but negotiations faltered when it became clear that the US Treasury was strongly opposed to using government money to help clinch a deal.
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Lehman Brothers employees leave their office with cardboard boxes How the events at Lehman Brothers unfolded
Greg Wood, the BBC's North America business correspondent, said that police had cordoned off the bank's headquarters in New York and staff were leaving with cardboard boxes as onlookers gathered to watch the bank's demise. By Sunday evening, staff at Lehman's headquarters in New York were leaving with cardboard boxes as onlookers gathered to watch the bank's demise.
"I think the whole history - 150 years of effort and hard work - that's the most saddening part for me," said one Lehman employee as she left the building."I think the whole history - 150 years of effort and hard work - that's the most saddening part for me," said one Lehman employee as she left the building.
The bank, which employs about 25,000 staff worldwide, including 5,000 in the UK, was founded in 1850 by three brothers.The bank, which employs about 25,000 staff worldwide, including 5,000 in the UK, was founded in 1850 by three brothers.
'Extraordinary 24 hours' Lehman Brothers filed for Chapter 11 bankruptcy protection, which allows a company time to reorganise and devise a plan to pay creditors over time.
Lehman Brothers said it intended to file for Chapter 11 bankruptcy protection, which allows a company time to reorganise and devise a plan to pay creditors over time.
FROM THE TODAY PROGRAMME More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
It said that its broker-dealer division and asset management division Neuberger Berman Holdings would not be included in the filing.It said that its broker-dealer division and asset management division Neuberger Berman Holdings would not be included in the filing.
The accounting firm PriceWaterhouseCoopers said the UK operations of Lehman Brothers have been placed under administration, and the business would be wound down in an orderly fashion. 'Extraordinary 24 hours'
Bank of America said it had agreed to buy investment bank Merrill Lynch for $50bn (£28bn), in a deal that will create the world's largest financial services company. Separately, Bank of America said it had agreed to buy investment bank Merrill Lynch for $50bn (£28bn), in a deal that will create the world's largest financial services company.
Three of the top five US investment banks have now fallen victim to the credit crunch. Lehman and Merrill join Bear Stearns, which was sold to JP Morgan for a knockdown price in March. Three of the top five US investment banks have now fallen victim to the credit crunch.
HAVE YOUR SAY Even if the markets recover, it'll happen again unless there's more accountability Martin, UKSend us your comments
Lehman and Merrill join Bear Stearns, which was sold to JP Morgan for a knockdown price in March.
The BBC's business editor, Robert Peston, said that it had been Wall Street's most extraordinary 24 hours since the late 1920s.The BBC's business editor, Robert Peston, said that it had been Wall Street's most extraordinary 24 hours since the late 1920s.
He said that Merrill's sale was almost as shocking as Lehman's demise.He said that Merrill's sale was almost as shocking as Lehman's demise.
"The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence," he said."The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence," he said.
Insurer in trouble
In addition to Lehman and Merrill Lynch, problems at AIG, once the world's largest insurer, are also mounting. Are you an employee of Lehman Brothers or another bank facing uncertainties? How concerned are you about the future? Tell us about your experience using the form below:
Reeling from losses on its exposure to real estate, AIG has sought $40bn from the Federal Reserve to shore up its finances, the New York Times has reported. name="say">
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To help prevent panic on financial markets, the Federal Reserve said for the first time it will accept stocks owned by banks as collateral for short-term cash loans, broadening its emergency lending programme.
Also 10 of the world's biggest banks on Sunday agreed to establish a $70bn emergency fund, with any one of the banks able to able to tap up to a third of it should they face any liquidity problems.