September 15, 2008

Hurricane on Wall St: Lehman bust; Merrill bought

by Brian Turner

If you're new here, you may want to subscribe to my RSS feed. Thank you for visiting!

It was like a hurricane. Within a single weekend two of the biggest investment banks in the US were destroyed. In doing so, the worst of the Credit Crunch may be over, and the real beginnings of a credit recovery may arise in its wake.

The news may seem distant to everyday business, but Wall St remains a foundation upon which the world’s wealth is bought and sold. Big events on Wall St will always impact everyday business somehow.

So what was the news?

Lehman Brothers, one of the biggest investment banks in the US, just filed for the biggest bankruptcy in US history.

Meanwhile, Merrill Lynch has been acquired by Bank of America.

Last year, Wall St had 5 major investment banks. Now there are only 2, the other three destroyed by the Credit Crunch.

Bear Stearns went belly up earlier this year after investors lost confidence in a manner similar to Northern Rock.

And over the weekend Wall St lost another two: Lehman Brothers and Merrill Lynch.

Both had been badly affected by the sub-prime mortgage fall out, as both carried massive investments in these areas.

Despite the need for extra capital to shore up their balance books, Lehman CEO Richard Fuld tried to ride it out. So when investors became increasingly aware of the company’s risks, they increasingly fled – to such a point that Lehman were effectively told to be sold or liquidate this weekend.

Merrill Lynch had already done what it could, but remained battered by sub-prime write downs. And with the bankruptcy of Lehman Brothers, Merrill Lynch could have faced a run by investors as well.

By taking over the company, Merrill Lynch business has been saved – but now leaves just Goldman Sachs and JP Morgan was the sole remaining investment banks on Wall Street.

Meanwhile, the Fed has provided a new funding program over this weekend, and major banks have created a $70 billion liquidity program, in order to help ease credit markets.

Greenspan calls the Credit Crunch a “once in a century event”, and we’ve just witnessed a massive hurricane rip through Wall St.

Despite the potential damage, the process of recovery in the financial markets may finally be at play.

Questions? Discuss this in our Internet Business forums for help and advice

Story link: Hurricane on Wall St: Lehman bust; Merrill bought

Add to Bookmarks: