LEHMAN Brothers Holdings, the fourth-largest US investment bank, has succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old company, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, has filed a Chapter 11 petition with the US Bankruptcy Court in Manhattan. The collapse of Lehman, which listed more than $US613 billion ($A754 billion) of debt, surpasses WorldCom's insolvency in 2002 and Drexel Burnham Lambert's failure in 1990.
Lehman was forced into bankruptcy after two suitors, Barclays and Bank of America, abandoned takeover talks and the company lost 94% of its market value this year. Chief executive Richard Fuld, who joined the New York-based company in 1969 and turned it into the biggest underwriter of mortgage-backed securities at the top of the US real estate market, joins counterparts at Bear Stearns, Merrill Lynch and more than 10 other banks that could not survive the credit crunch.
"There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown," said Charles Tatelbaum, a Florida-based bankruptcy lawyer and former editor of the American Bankruptcy Institute Journal. "The whole thing is frankly frightening for the US economy."
Barclays, which had emerged as a leading candidate to acquire Lehman, pulled out of negotiations first. Bank of America withdrew about three hours later, before saying it would acquire Merrill Lynch.
Founded in 1850 by three Jewish immigrants from Germany, Lehman was among the handful of US financial companies that had endured for more than a century.
Mr Fuld, the longest-serving CEO on Wall Street, attempted to shore up the company's finances in the second quarter by raising $US14 billion of capital, selling $US147 billion of assets, increasing cash holdings and reducing reliance on short-term funding to create a buffer against a bank run.
Lehman last week reported the biggest loss in its history and said it planned to sell a majority stake in its asset-management unit, spin off real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence.
The efforts failed to stem speculation that its mortgage holdings would lead to more losses. Lehman fell 77% last week in New York trading.
Mr Fuld, 62, is exploring the sale of its broker-dealer operation and continues talks on the sale of its asset-management unit.
The US Securities and Exchange Commission said customer accounts at Lehman were protected and agency staff would remain at the brokerage.
BLOOMBERG
