Photograph of Lehman Brothers employees leaving the Midtown office yesterday--after emptying their offices--by David Karp/AP

The financial industry's worst weekend ended on these notes: Lehman Brothers filed for bankruptcy, after being unable to find a buyer; Bank of America, previously interested in Lehman Brothers (but didn't want to buy it without government protection) decided to buy Merrill Lynch for $50 billion; and there's concern AIG and Washington Mutual will fall next. The financial markets are expected to be in tumultuous territory, and a banking analyst told USA Today, "We are in a hysteria."

Despite filing for Chapter 11 protection, Lehman has still hopes to sell its broker-dealer operations, according to CNBC. Some important figures: Lehman has $613 billion in debt, which, per Bloomberg News, "surpasses Drexel Burnham Lambert's failure in 1990." It also lost 94% of its stock value over the past year.

A trading session was opened between 2 p.m. and 6 p.m. yesterday, The Wall Street Journal reports, "to ease fears...The idea was to allow firms to try to unwind their derivatives transactions with Lehman by finding other parties to step into Lehman's shoes." However, one trader said, "People were screaming at each other over the phone, asking: How can this work?"

Merrill Lynch, which has lost 68% of its stock value over the past 12 months, ended Friday with a $17.05/share price; Bank of America is buying it at $29/share. This turns Bank of America, the biggest retail bank, into a behemoth; a portfolio manager told Bloomberg News, "If Bank of America can put a fence around the bad assets, that retail distribution is a powerhouse. The Merrill Lynch combination makes more sense than a Lehman deal.'' However, a placement firm executive warned, "B of A is known for making big cuts. They go in and thin it out."

Also of note:

  • To deal with the credit shortage, ten banks-- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS--agreed to each put $7 billion into a "collateralized borrowing facility."
  • AIG is looking for raise cash--if its credit rating is downgraded to the point where "counterparties [can] withdraw capital from their contracts with the company," the firm will "survive for only 48 hours to 72 hours," a source tells the Times.
  • The Fed will expand its lending facilities.
  • Now there are just two NY-based securities firms--Morgan Stanley and Goldman Sachs.