Sunday September 14, 10:58 pm ET
By Joe Bel Bruno, Christopher S. Rugaber and Martin Crutsinger, AP Business Writers
As Lehman’s future dims, Fed and banks offer cash lifeline to financial system
NEW YORK (AP) — A failed plan to rescue Lehman Brothers (LEH) was followed Sunday by more seismic shocks from Wall Street, including an apparent government-brokered takeover of Merrill Lynch (MER) by the Bank of America (BAC).
A forced restructuring of the world’s largest insurance company, American International Group Inc. (AIG), also weighed heavily on global markets as the effects of the 14-month-old credit crisis intensified.
A global consortium of banks, working with government officials in New York, announced late Sunday a $70 billion pool of funds to lend to troubled financial companies. The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.
Ten banks — Bank of America, Barclays (BCS), Citibank (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), JP Morgan (JPM), Merrill Lynch, Morgan Stanley (MS) and UBS (UBS) — each agreed to provide $7 billion “to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets.”
The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.
Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying “potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses.”
Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling.