Lehman Brothers may be on verge of insolvency

Lehman Brothers is thought to be teetering on the edge of bankruptcy following billions of dollars in write downs this year.

Reports in a number of newspapers this weekend suggest Barclays, Bank of America and Goldman Sachs are considering splitting up the assets of the beleaguered bank to stave off a full blown collapse.

The Wall Street Journal says that Bank of America is set to take the bulk of the bank including its mortgage assets while Barclays would take its fixed income and asset management businesses leaving Goldman Sachs with the rest of Lehman’s holdings.

But Barclays is thought to have pulled out on Sunday following three days of emergency negotiations with the American government and officials from Citibank, Bank of America, JP Morgan Chase and Goldman Sachs.

There has also been speculation that a “bad bank” will be set up to manage the high risk mortgage assets and sell them off at discount prices.

Last week the American lender with UK mortgage holdings revealed a $3.9bn Q3 loss in its preliminary results.

It also unveiled an executive restructure and the sale of $4bn in mortgage assets to BlackRock Financial in an attempt to derisk the business.

Speculation is rife that the Federal Reserve could step in to prevent the bank from filing for insolvency and destabilising the banking system as a whole but Henry Paulson, secretary of the US Treasury, has stated publicly that the US government will not be rescuing the 158 year old bank.

Reports also suggest the uncertainty surrounding Lehman, the fourth largest bank on Wall Street, will shake up international credit markets this week and deepen the existing credit crunch.