Could Lehman Brothers Avoided Bankruptcy?

Just as I mentioned recently the worst ain't over for the US financial credit crisis, despite Fannie's rescue package, global financial markets were absolutely rocked by the news that one of the largest US investment bankers, Lehman Brothers, have filed for bankruptcy! This seems to be the only available alternative for Lehman as they could not find a white knight rescuer and the US Government's reluctance to bail them out after series of recent bailing out events.

Lehman Brother's financial position is in such a terrible state that their market capitalization was only USD60billion as at the end of August against their assets of USD600billion! Having so little capital meant that a further small decline in assets would wipe out the value of the company!

Questions were raised about Lehman's viability and why they did not initiate a rescue plan much earlier? Considering the earlier actions of the likes of Bear Stearn (acquired by JP Morgan), Fannie and Freddie, and the latest acquisition of Merrill Lynch by Bank of America (for USD50billion stocks deal)

The Chapter 11 filing represents the end of a proud 158-year-old company that survived world wars and the Asian financial crisis but could not survive the global credit crunch!

Perhaps if Lehman had reacted earlier on their foreseeable problems and bite the bullets, the outcome could have been a lot different!

Next up, a possible collapse of insurance giant American International Group (AIG) could be on the cards, as they are seeking USD40b financing from US Federal Reserve!

Also watch out for the development of Citigroup, Bank of New York, Japan’s Aozora Bank Ltd and Mizuho Financial Group as these were among the top unsecured creditors to Lehman. Their financial position could be seriously damaged by the bankruptcy.

For the record, Dow Jones responded with more than 4% free fall on Monday!