BLACK SUNDAY: Lehman Files For Bankruptcy; BofA To Buy Merrill (Dow Jones)

AT A GLANCE, the events of yesterday:

THE EVENTS: Two of Wall Streets' venerable investment giants have been brought to their knees - and an insurance powerhouse hangs by its fingertips. Lehman Brothers Holdings Inc. (LEH) filed for bankruptcy protection, while Merrill Lynch (MER) agreed to be acquired by Bank of America Corp. (BAC) for $50 billion.

Meanwhile, another victim of the ongoing credit and housing crunch, insurance giant American International Group Inc. (AIG), is desperately trying to raise capital.

MARKET REACTION:

Merrill shares gained 14% to $19.51 as investors expressed relief, but Bank of America fell 18% to $27.65. Lehman stock fell 95% to 19 cents a share and AIG dropped 53% to $5.67.
The Dow Jones Industrial Average was down 279 points at 11142, Nasdaq was off 45 at 2216 and the S&P 500 fell 32 at 1219.

Treasurys soared as investors scrambled for safety.

The U.S. dollar was flat against the euro.

Oil futures slid to a seven-month low as speculators fled for perceived safe havens amid turmoil on Wall Street.

LEHMAN BROTHERS SEEKS PROTECTION:

Wracked by massive real-estate-related losses, Lehman Brothers Monday filed for Chapter 11 protection after a feverish weekend of negotiations failed to snag a potential buyer. The two most likely suitors, BofA and Barclays PLC (BCS), walked away after the U.S. government said it would not backstop Lehman's troubled assets to facilitate a sale.

Federal regulators assured Lehman brokerage customers that their accounts will be protected and transferred to other brokerage firms.

Lehman continues to seek buyers for some assets, including its U.S. broker- dealer business and its investment management arm, The Wall Street Journal reported. Barclays remains interested in buying the U.S. broker-dealer unit. Lehman is moving to sell its investment-management division as soon as this week, possibly to Bain Capital LLC, Hellman & Friedman LLC or Clayton Dubilier & Rice Inc.

MERRILL ABSORBED AMID CRISIS:

Merrill, in a rushed bid to ride out the storm sweeping Wall Street, agreed to be taken over by BofA in a $50 billion all-stock transaction. Through the weekend, federal officials strongly encouraged the deal, fearing Merrill would be the next financial house to approach the brink after Lehman.

Bank of America Chief Executive Ken Lewis said he felt "no pressure" from federal government regulators to acquire Merrill.

AIG SEEKS CAPITAL:

AIG - hobbled by credit default swap investments that have gone sour - spent the weekend trying to raise $40 billion to avoid a credit downgrade which would let counterparties pull their capital from deals with the firm. AIG Chief Executive Robert Willumstad made an extraordinary appeal to the Fed for temporary funding to tide it through the crisis.

AIG received permission from the governor of New York to access as much as $20 billion in capital from its subsidiaries to cover operating needs.

WALL STREET CIRCLES THE WAGONS:

Ten major commercial and investment banks announced Sunday they would pool $70 billion of their own money to create a borrowing facility that they could tap into to help them ride out the crisis.

U.S. TAKES STEPS TO SUPPORT FINANCIAL MARKETS:

U.S. regulators Sunday announced a series of steps - including an expansion of the Federal Reserve's credit facilities - in hopes of stabilizing financial markets after a tumultuous weekend. The moves are designed to make it easier for banks to gain access to emergency credit.

WHAT THEY SAID:

U.S. Treasury Secretary Henry Paulson said he "never once" considered using taxpayer money to bail out Lehman. "It's important that regulators remain very vigilant, we're very vigilant," he said. "But we do not take lightly ever putting the taxpayers...on the line to support an institution."

"In the long run, I'm confident that our capital markets are flexible and resilient to deal with these adjustments," said U.S. President George W. Bush.

Source: Money.CNN.com.