Lehman Brothers files for bankruptcy protection

by Gill Montia

Story link: Lehman Brothers files for bankruptcy protection

Lehman Brothers, Wall Street’s fourth largest investment bank, is filing for bankruptcy protection.

The bank is a major underwriter of mortgage-backed securities which are now worth only a fraction of their original value and a weekend of rescue talks involving Barclays, Bank of America, the US Treasury Secretary, Henry Paulson, and others, failed to find a solution to the problems of the 158-year-old institution.

The group’s holding company will apply for a Chapter 11 petition in the US Bankruptcy Court but the move should not affect any of the group’s subsidiaries.

Unlike the UK system, where administrators are called in, US bankruptcy proceedings allow a business to continue trading whilst receiving protection from its creditors and Lehman Brothers is advising its customers that they can continue to use their accounts normally.

Banks worldwide are now assessing their exposure to the possible collapse of Lehman Brothers and it is reported that 10 global financial institutions have responded to the crisis on Wall Street by creating a $70 billion fund from which founder members can borrow.