Commercial Property News

It has been a Black Weekend on Wall Street as Lehman Brothers has filed for Chapter 11 bankruptcy after US Government officials and top Wall Street bankers held talks yesterday in an effort to sell Lehman Brothers Holdings Inc. and avoid a collapse of the beleaguered investment bank that could severely disrupt global markets. Merill Lynch has narrowly escaped a similar fate after losing $45 billion and insurer AIG in trouble.

According to the court filing Lehman has debts of $639 billion but assets of only $619 billion. Barclays PLC, Britain's third-largest bank, backed out of talks on Sunday after emerging during the morning as a front-runner to take over Lehman's assets, according to a person inside the U.K. bank who spoke on condition of anonymity, in keeping with company policy. The person, who had knowledge of the talks, said the decision was "very unlikely" to change. He said Lehman was attractive but did not meet what he described as Barclay's stringent requirements. Barclays this morning issued a statement confirming these facts.

The knock-on effect of this would appear to affect Citigroup worst, holding around $138billion of unsecured Lehman bond debt, but other major creditors are Bank of New York, Mellon Corp., Aozora Bank,and the Mizuho Financial Group.

Meanwhile Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth $50 billion, snagging the world's largest retail brokerage after one of the worst-ever weekends on Wall Street.

'It catapults Bank of America into positions of strength in three businesses where they were weak,' said James Ellman, portfolio manager at hedge fund Seacliff Capital.

'Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world,' Ellman said.

Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.

The bank is buying about $44 billion of Merrill's common shares, as well as $6 billion of options, convertibles, and restricted stock units.

Bank of America said it expects to achieve $7 billion in pretax expense savings, fully realized by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.

Giant US insurer  American International Group Inc(AIG) is also in difficulty, and was seeking a $40 billion bridge loan on Sunday night from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said. AIG’s share price dropped more than 30% on Friday amid concerns over its involvement in the business of writing insurance against defaults on mortgage bonds.

AIG  suffered $18.5bn in losses in the past three quarters, plays a central role in the credit default swaps market and in structured finance. It has not been linked as publicly to the credit default swaps market in recent years as the investment banks have been, however, because many of the insurer’s activities have been concentrated in more opaque and complex areas.