Lehman Brothers has filed for Chapter 11 bankruptcy protection after it failed to find a buyer over the weekend, but the US investment bank still hopes to find a purchaser for its broking operations. The firm has made no comment on its Baikal dark pool joint venture with the London Stock Exchange.
The bank sought Chapter 11 status after acquisition talks with Bank of America and Barclays stalled over the weekend. Having decided against the purchase, Bank of America has agreed to buy rival broker Merrill Lynch for $44bn. According to reports in the Wall Street Journal, the boards of the two firms agreed to approve the deal late on Sunday, with lawyers expected to finalise the details today. Merrill Lynch had been seen as increasingly vulnerable following Lehman’s collapse due to its heavy losses – its writedowns have totaled $5.2bn – since the sub-prime mortgage crisis emerged last summer.
A statement from Lehman Brothers said its business units would operate as normal while the holding company filed its Chapter 11 petition and that it would continue to seek a buyer for its broker-dealer operations. "None of the broker-dealer subsidiaries or other subsidiaries of Lehman Brothers Holdings Inc (LBHI) will be included in the Chapter 11 filing and all of the broker-dealers will continue to operate," the bank said.
"LBHI is exploring the sale of its broker-dealer operations and, as previously announced, is in advanced discussions with a number of potential purchasers to sell its investment management division. LBHI intends to pursue those discussions as well as a number of other strategic alternatives," the statement added.
The Financial Services Authority in the UK said it was cooperating the US Securities and Exchange Commission. "Lehman Brothers is a US institution regulated by the SEC, so the FSA is working closely with the US authorities to ensure an orderly wind down of its principal UK trading subsidiary, Lehman Brothers International (Europe), which was placed into administration earlier this morning," the UK regulator said.
"The FSA is working with market practitioners, including the London Clearing House, to ensure the process connected with the winding down of this wholesale business is completed in an orderly manner to minimise any market disruption," it added.
Lehman Brothers, a large player in the European equity markets, had recently announced plans for a joint venture with the London Stock Exchange, Baikal, to provide liquidity aggregation services in the European equity markets. But the future of the dark pool is now under threat as Lehman Brothers was expected to supply much of its anti-gaming, routing and algorithmic trading capabilities. Baikal was due to launch in Q1 2009.
Mark Husler, head of business development - data and software solutions, at the London Stock Exchange said he still expected Baikal to go live. "We're still in shock from this morning's news, but since Baikal is a separate entity we expect it to continue. We shall know more in a few days," he said.