Some events leave their mark on the history of money and change the rules of the game forever. As traders watched the news tickers in shock and horror, they sensed that history was unfolding before them. “Lehman failed, Merrill sold and AIG trying to raise $50 billion before the opening bell”—it was surreal. Wall Street will never be the same again.
In the course of an extraordinary weekend its oldest and the fourth-largest investment bank Lehman Brothers Holdings Inc filed for bankruptcy while Merrill Lynch, famous for its iconic bull statue in the New York City financial district, sold out before it was too late. Over the weekend, two of the most storied investments banks faded into history, with Lehman headed for the biggest bankruptcy filing and Bank of America buying Merrill in a $50 billion stock deal. The world of high finance had turned upside down. At the time of writing, another titan, the largest US insurer, American International Group Inc (AIG), was struggling to raise money, possibly from private equity. AIG has also asked the US Federal Reserve for a bridge loan.
The enormity of the disaster sparked distrust among high street banks, which refused to lend to each other, and led to panic among investors who sold fearing the worst—forcing some of the central banks to swing into action. People’s Bank of China cut interest rate for the first time in six years and lowered reserve requirements for smaller banks, while the US Fed made it easier for bond houses to borrow. The greed and excesses of the market had come home to roost.
Bankers in Mumbai discussed among themselves how to sort out their exposures to equity, debt and interest rate swaps to Lehman. They are taking legal opinion on whether possible non-payment by Lehman could be construed as a ‘default’ since Lehman India is a separate entity here. Both Lehman and Merrill’s operations in India will see a substantial shakeout soon, and there’s a possibility that BankAm may sell Merrill’s India operations. Andrew Holland, chief of DSP Merrill Lynch’s equity proprietary trading, is joining local investment bank Ambit Holdings with his team, though some said this was pre-decided. Lehman, which has seen people quitting since March, has asked many employees in India to leave.
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