Lehman (LEH) Files for Chapter 11 - Can't find a Buyer

Here are the thoughts of Brad Hintz

Lehman Brothers Holdings was not sold. Barclays pulled out of the negotiations, apparently concluding that conservatism is the best course of action in today's uncertain credit market conditions, and Bank of America found a better partner in Merrill Lynch.

The US Treasury decided that it will not provide credit support of a Lehman Brothers acquisition beyond the funding support what it is already being provided through the Fed discount facilities. Therefore, The Street spent part of the weekend making preparations for a worst case outcome. ISDA has produced a legal document in an attempt to facilitate the orderly unwind of the Lehman derivatives book in preparation of a potential bankruptcy filing by the firm.

Having survived the weekend without being acquired, LEH apparently concluded that an attempt to open for business this morning in New York was futile. Even with a strong liquidity position and access to the Fed discount window, management realized that it would not be able to raise more equity capital given its stock price and that issuance of long term debt would be problematic. We believe its ratings were about to be taken down by Moodys and it was unlikely that counterparties would accept Lehman settlement risk; therefore, the company would be forced to pre-fund its trades.

And although the $600 billion balance sheet of the firm would provide plenty of sources of immediate cash if the firm began to liquidate its securities inventories, management apparently concluded that the plan Lehman Brothers presented last week was impossible to complete with LEH's stock price more than 90% down and an orderly liquidation strategy would only prolong the inevitable. So the firm filed Chapter 11 this morning.