US Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner urged the heads of Wall Street’s biggest firms to find a solution to the plight of Lehman Brothers Holdings Inc, signaling their reluctance to use government funds to bail out the investment bank, two people familiar with the talks said.
Chief executives who attended the meeting at the New York Fed late on Friday afternoon included Citigroup Inc’s Vikram Pandit, JPMorgan Chase & Co’s Jamie Dimon, Morgan Stanley’s John Mack, Goldman Sachs Group Inc’s Lloyd Blankfein, Merrill Lynch & Co’s John Thain and Bank of New York Mellon Corp’s Robert Kelly, the sources said, declining to be identified because the meeting wasn’t public. Christopher Cox, chairman of the US Securities and Exchange Commission, also participated.
Kendrick Wilson, a former Goldman Sachs executive whom Paulson tapped last month as an adviser, helped lead the discussions, which ended without a specific plan, one of the people said. Bank of America Corp CEO Kenneth Lewis did not attend because his firm is a potential bidder for Lehman, the person said.
Bank of America, the biggest US consumer bank, is among the firms weighing an acquisition of some or all of the 158-year-old investment bank after it reported its worst quarterly loss this week and the shares plummeted 77 percent in the past five days, said sources familiar with the situation who declined to be identified because the negotiations are confidential.
Spokesmen for the New York Fed and the SEC confirmed that the meeting took place with “senior representatives of major financial institutions” and declined to comment further.
The US Treasury is “in regular contact” with market participants, spokeswoman Jennifer Zuccarelli said earlier yesterday.
Paulson doesn’t want to put up money to help fund any Lehman acquisition, a source familiar with his thinking said yesterday. Unlike when the Fed committed US$29 billion to help JPMorgan Chase & Co take over Bear Stearns in March, Lehman now has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.
At the meeting on Friday, Paulson indicated he wants to avoid putting taxpayer money behind New York-based Lehman the way the government stepped in to guarantee the debt and mortgage-backed securities of home-loan financing companies Fannie Mae and Freddie Mac, said the people, who declined to be identified because the meeting was private. The government also wants to avoid a collapse of Lehman, which might disrupt US financial markets.
The banks and brokers called into the meeting may be asked to contribute money to back Lehman long enough to unwind its trades, the people with knowledge of the discussion said. No agreement was reached and the discussion was preliminary, a source said.
Potential buyers demanded some sort of government protection in the Bear Stearns case because of the mortgage-related assets the firm owned, which had plummeted in value. Since the collapse of the subprime mortgage market last year, banks have reported more than US$510 billion in writedowns and credit losses on such assets.
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