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NEW YORK : The turmoil surrounding embattled Wall Street giant Lehman Brothers extended Friday as its share meltdown continued and the company and US government scrambled to find a buyer.
Shares in Lehman fell 9.3 percent to 3.84 dollars on the heels of a 41.7 percent slide Thursday.
With Lehman on the brink of collapse, speculation swirled over a deal to save the the venerable Wall Street firm amid ongoing debate on whether the US government should "backstop" any deal with credit guarantees -- a decision widely criticized in the takeover of Bear Stearns earlier this year.
Some reports said officials and company executives were trying to put together a deal over the weekend.
"The central bank's rumored involvement will again raise concerns about moral hazard," said Ryan Sweet at Economy.com.
"Many view the Bear Stearns takeover and the recent seizure of mortgage giants Fannie Mae and Freddie Mac as bailouts. That said, a failure of any major financial institution will send borrowing costs higher and hurt business and investor sentiment. The timing is particularly bad, as banks need cash at the end of a year to balance their books. Higher borrowing costs could put many in a difficult, if not fatal, squeeze."
"It's a tough one because the (financial market) interactions are so complex you just don't know the consequences," said Cary Leahey, senior economist at Decision Economics.
"Is failure an option? Part of capitalism is failure ... but are the repercussions so great? You can have everybody with their hat in their hand seeking a bailout. It'll be the auto industry and then the citrus growers."
White House spokesman Tony Fratto said the US Treasury "is closely monitoring the markets and they stay in contact with market participants."
"There is no question that the financial industry is dealing with challenges and that's something that we keep an eye on," Fratto told reporters on Air Force One.
The Wall Street Journal reported that Bank of America was a leading candidate for a takeover.
The Financial Times said that in addition to Bank of America, private equity firm JC Flowers & Co and China Investment Co, the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman. British-based Barclays is also interested, the FT said.
A source familiar with the negotiations told AFP Thursday talk of a deal was premature.
"It is wrong to imply that there's one single option that is being pursued to the exclusion of all others," said the source, speaking on condition of anonymity.
The source added that it was also wrong to imply "that anything is so far developed that it is just 'details to be finalized.'"
Standard & Poor's has kept Lehman on watch for a possible credit downgrade -- which if it occurs would make it even more difficult to raise cash.
The latest troubles for Lehman come days after the US government took over mortgage finance giants Fannie Mae and Freddie Mac in an effort to stem a global credit crisis.
The financial firms have been roiled by the horrific slump in the US real estate market that has battered the banking firms that financed market speculation.
- AFP /ls
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