Investment bank Lehman Brothers files for bankruptcy protection

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THE ASSOCIATED PRESS

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NEW YORK - Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 bankruptcy protection from its creditors yesterday and said it was trying to sell off key business units.

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The Associated Press

Elizabeth Rose of Lehman Brothers MarketMakers works at her post on the trading floor of the New York Stock Exchange yesterday.

The filing was made in the U.S. Bankruptcy Court in the Southern District of New York by Lehman Brothers Holdings Inc., the bank's holding company. The case had not yet been assigned to a judge.

Lehman's (NYSE:LEH) last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.

Lehman learned at a last-minute meeting on Friday with federal officials that it would not be getting any emergency funding to give it the liquidity it needed, chief financial officer Ian Lowitt said in an affidavit.

Lehman fell under the weight of US$60 billion in soured real estate holdings and a credit market that forced it to seek court protection.

The Lehman bankruptcy spilled over onto Canada's financial sector, with Canadian Imperial Bank of Commerce (TSX:CM) revealing it has about $25 million worth of exposure to the insolvent Wall Street brokerage.

The $25-million value is considered mark-to-market, which is the value of those assets at their current market worth, rather than its book value.

Meanwhile, Sun Life Financial Inc. (TSX:SLF), a major Toronto-based life insurance company, said it holds $334 million of Lehman bonds and about $15 of Lehman derivative financial instruments. The company said it expects to take a charge to its earnings in the third quarter, but the amount is dependent on the amount of expected recoveries and other factors.

As Lehman's health deteriorated in recent months, Lowitt said Lehman had "explored various options to restructure operations, reduce overall cost structure, and improve performance." He said executives took a two-pronged approach to saving the company: selling its investment management division and separating troubled real estate assets from the rest of the company.