The Lehman Brothers (NYSE: LEH) debacle is swiftly coming to a head, as the troubled broker-dealer is now forced to shop itself for an acquirer. I think a deal could be announced within 72 hours, but who will be standing across the aisle? Here are some of the candidates whose names have arisen:
Most likely in the U.S.: Bank of America (NYSE: BAC)
Bank of America is in talks with Lehman. It has the financial heft to pull off a deal, and the addition of Lehman would propel its investment banking and asset management businesses forward.
Most likely abroad: Barclays (NYSE: BCS)
Combining Lehman's fixed-income and investment banking franchises with the British ETF powerhouse is a nice fit in terms of businesses, though questions about a potential culture clash remain.
Unlikely: Nomura Holdings
Managerial decision-making in Japan is heavily consensual, and therefore plodding. That doesn't lend itself to a situation in which Lehman needs a commitment, and fast.
Very unlikely: JPMorgan Chase (NYSE: JPM)
This firm's pillage, er, rescue of Bear Stearns in March is a pretty good blueprint for a Lehman "take-under" (although the Treasury likely won't provide any guarantees here -- more on that later). However, JPMorgan won't line up again; it's got enough work digesting its Bear stew.
Equally unlikely: Goldman Sachs (NYSE: GS)
Though I have seen articles alluding to such tie-up, the probability of it actually happening are close to zero. The overlap between the two firms is enormous.
Openly unwilling: The U.S. government
Lehman's nationalization is out of the question -- this is no Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE). What about the tricky issue of systemic risk, which prompted the Treasury to facilitate the deal for Bear Stearns? The Treasury appears to be taking a harder line here, and it's reluctant to offer the type of guarantees it did with Bear.
(That's the right position, if you ask me. Is the smallest of the four large investment banks really too big to fail? If so, our financial system simply isn't resilient enough, and we should consider breaking up the biggest firms. I think the opposite is true.)
Lehman's fall from grace is a fascinating case study in managerial overconfidence and insular decision-making. Whoever comes forward to claim the prize, Lehman CEO Dick Fuld will have offered his firm up to them on a silver platter.
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