Lehman Heads Toward Brink as Barclays Ends Talks

Sunday, September 14, 2008, 3:17 PM

It looks like we're headed for liquidation. Nobody has any idea what this really means or how this will play out in the derivative markets.

Perhaps this will be resolved later today, maybe not. Here's the news, hot off the presses:

Unable to find a savior, the troubled investment bank Lehman Brothers appeared headed toward liquidation on Sunday, in what would be one of the biggest failures in Wall Street history.

The fate of Lehman hung in the balance as Federal Reserve officials and the leaders of major financial institutions continued to gather in emergency meetings on Sunday trying to complete a plan to rescue the stricken bank.

But Barclays, considered the leading contender to buy all or part of Lehman, said Sunday that it could not reach a deal without financial support from the federal government or other banks, making a liquidation more likely.

Yikes, that's not good.

What's going to happen with all the derivatives at Lehman? Now that's an interesting question!

And here's the answer, courtesy of Bloomberg:

The fourth-largest securities firm until the past week, Lehman has thousands of such trades in credit, equity, commodity, interest rates and currency derivatives.

The ISDA said the "netting trading session" began at 2 p.m. and will continue until at least 6 p.m. New York time.

"Trades are contingent on a bankruptcy filing at or before 11:59 p.m. New York time, Sunday, Sept. 14, 2008," the ISDA said. "If there is no filing, the trades cease to exist."

Wow! The trades will cease to exist? Say what?? Imagine the rush to line up between the hours of 2 and 6!! Thousands of trades will have to be registered between the hours of 2 and 6. Trust me, there's going to be a few heart attacks between those hours...better queue up the ambulances. 

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