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Wall Street Prepares for Potential Lehman Bankruptcy

Discussion in 'Finance & Banking' started by Tropo, 15th Sep, 2008.

  1. Tropo

    Tropo Well-Known Member

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    Wall Street Prepares for Potential Lehman Bankruptcy

    Sept. 14 (Bloomberg) --
    Wall Street readied for a potential Lehman Brothers Holdings Inc. bankruptcy after Bank of America Corp. and Barclays Plc pulled out of talks to buy it and the government indicated it wouldn't provide funds to prevent a collapse.
    Banks and brokers today held a session for netting derivatives transactions with Lehman, or canceling trades that offset each other, in case the New York-based firm files for bankruptcy before midnight.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=aNMh_8NRE6QM&refer
     
  2. Tropo

    Tropo Well-Known Member

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    .......
    "SYDNEY (Dow Jones)--Australian credit default swap spreads blew out Monday to their widest levels since March, and further volatility is likely during European trading, analysts say.

    The rush for credit protection was triggered by reports that Lehman Brothers faces the prospect of liquidation.

    Australian banks are scrambling to gauge their exposure to the U.S. fourth-largest investment bank through counterparty risk, traders said.

    "Clearly a lot of people now have a lot of exposures that they didn't think they had on Friday," said a trader who didn't want to be named.

    Australian banks who previously bought from Lehman credit protection on individual corporate names are now in a position of being 'long risk', rather than 'short risk', the trader said.

    If Lehman does file for bankruptcy, spreads will push wider again, he said. "People are going to have a lot of risk positions on their books now that they didn't think they had, they're going to be the wrong way around on a lot of trades."

    A series of shock waves has swept through the U.S. financial system in the past twenty four hours, as apparent efforts to sell or break up Lehman Brothers failed, while the Wall Street Journal has reported Merrill Lynch has agreed a takeover offer from Bank of America.

    The unprecedented volley of tremors has prompted the U.S. Federal reserve to again widen its collateral window. Meanwhile, a group of 10 global banks have agreed to provide $70 billion to help offset a credit squeeze.

    Australia's credit swap index soared early.

    At 0300 GMT, the index was quoted at around 175-185 basis points, from around 160 basis points Friday.

    In March, prior to the bail out of investment bank Bears Stearns, the index traded to a record wide of around 220 basis points.

    Trading volumes are thin, as Tokyo and Hong Kong markets are closed, and also because banks are pausing to assess their exposure to Lehman Brothers, a second trader said.

    "Every bank who trades in the CDS market would have exposure to Lehman...everyone at the moment will be trying to disentangle themselves," the trader said.

    Australia's four major banks Westpac Banking Corp. (WBK), Australia & New Zealand Banking Group Ltd. (ANZ), National Australia Bank Ltd. (NAB), and Commmonwealth Bank (CBA.AU) declined to comment on their exposure to Lehman.

    A spokesman from smaller lender and Westpac takeover target St. George Bank Ltd. (SGB.AU) couldn't be reached for comment".

    Also: Latest Business News, Financial & ASX Markets News | BusinessDay.com.au