US Federal Reserve officials and bank bosses are understood to be locked in talks today as they scramble to secure a rescue deal for embattled US investment bank Lehman Brothers.
Negotiations resumed for the third day in a row at the Fed’s New York headquarters ahead of an overnight deadline to strike a deal, according to reports.
Top five UK bank Barclays and a consortium led by Bank of America are said to be front-runners to secure Lehman Brothers, which has fallen into difficulty amid the credit crisis.
US Treasury Secretary Hank Paulson is believed to have urged the banks to consider putting together a bid, although Barclays declined to comment.
BoA has reportedly teamed up with private equity firm JC Flowers & Co and Chinese sovereign wealth fund China Investment Co to look at tabling an offer for Lehman.
But it is thought that banks are pushing for US Government financial help to tidy up Lehman’s battered balance sheet – assistance that Mr Paulson has already ruled out.
Lehman’s shares plunged further on Wall Street on Friday, which has put more pressure on the bank’s bosses to secure a quick deal.
Senior Fed and Treasury officials are now believed to be leading the discussions as they fear a collapse of its fourth largest investment bank could spark far reaching troubles for the banking sector.
A full-blown sale or break-up now looks inevitable after the market gave a poor response to survival plans outlined by Lehman last week aimed at remaining independent.
It rushed out the plans alongside third quarter figures that were brought forward after shares plunged on fears over its future, which also sent stocks nose-diving globally.
News that a major stake sale had fallen through left investors concerned that Lehman was running out of options to raise capital.
The bank revealed third quarter losses of $3.9bn (€2.75bn), and said it could boost finances by selling a majority stake in its investment management arm and spinning off commercial real estate operations.
Lehman Brothers also said 1,500 jobs were being cut globally to help save cash, bringing the total axed since the end of November to more than 3,800.
But shareholders rushed for the exit after Lehman failed to instil confidence in the group’s plans.
The fourth-largest US securities firm has suffered badly in the wake of last summer’s credit crunch and the collapse of America’s sub-prime mortgage market.
Trading has been hit by $8.2bn (€5.8bn) in write-downs and credit losses since the financial crisis began.
It has been trying to boost liquidity to repair its balance sheet by selling a stake in the group, but talks over a possible deal with Korea Development Bank (KDB) broke down last week.
Investors have been anxious that Lehman could follow in the footsteps of smaller rival Bear Stearns, which nearly collapsed in March before an 11th hour sale to JP Morgan Chase.
In the UK, Lehman employs staff at its regional headquarters in Canary Wharf, London, as well as its office in High Wycombe, Buckinghamshire.
Globally the group has around 25,000 staff.