Corporate Governance

Lehman Bites the Dust, AIG Nervously Waits in the Wings

By Carol Straw

Today, Lehman Brothers Holding Inc. filed for bankruptcy after takeover talks with Barclays Plc and Bank of America failed this weekend. The investment banking giant succumbed to the subprime mortgage crisis it helped to create. Lehman was the biggest underwriter of mortgage-backed securities. Joining the ranks of Bear Sterns, Merrill Lynch and ten other banks so far, Lehman did not survive the credit crunch listing more than $613 billion of debt on its books.

American International Group, Inc., the largest U.S insurer by assets, has sought a $ 40 billion lifeline from the Federal Reserve, according to the New York Times. The insurance giant rejected offers from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co. It is expected to report its worst quarter yet with write-downs of $30 billion. The company got into trouble when it expanded into areas such as credit-default swaps, which are contracts AIG sold to protect debt investors. The narrow margins on the swaps presented a far greater risk than AIG anticipated. Standard & Poor?s has reported that it may downgrade AIG?s credit ratings which may further crimp the insurer?s access to capital.

This turn of events is troubling for all investors, especially those who held sizeable investments in these two venerable institutions and believed them when they told investors that they could weather the storm.

Full post as published by PomTalk on September 15, 2008 (boomark / email).