We understand that a deal has been reached to divide Lehman Brothers into two entities, with a "bad bank" taking the toxic, real-estate assets amounting to around $85 billion. The deal will be financed without any government backing. Lehman chief executive Dick Fuld will resign.
Bank of America will take the lion's share of the good assets of Lehman, with Barclay's and Nomura playing a role as well. An international consortium of financial firms will inject capital for the deal, preventing Lehman's assets from flooding the market in a fire sale. Many US based firms have not played a large role, in part because they are facing their own financial challenges.
Dick Fuld's resignation was demanded by Bank of America, which played a brinkmanship role in negotiations, threating to let Asian markets open tomorrow without a deal in place, a person familiar with the matter says. Many believe that a Monday market opening without a resolution would effectively have been the end of Lehman Brothers and could have spread financial turbulence to other securities firms. (On a side note: apparently, Japanese markets will be closed Monday morning for a holiday.)
Fuld is said to have taken tonight's developments very badly. He does not believe that the situation is as desperate as others on Wall Street believe it is, and may be trying to negotiate an alternative deal, we're told.
Of course, the situation remains fluid and there is still a possibility that the deal reached tonight could fall apart. Many of the details remain to be worked out, although there is widespread agreement on the outline of this deal.
Update: The New York Post is reporting that Lehman was taking offers for its investment management business today.
The notion of a planned sale of its asset-management operation, which is anchored by Neuberger Berman, is alive because Lehman plans on using the offers, which were submitted yesterday, to help assign a value to the entire bank, sources said.