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Buyers circling Lehman, but federal help is a question

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From Times staff writer Walter Hamilton

Who wants to buy Lehman Bros.? And with what kind of government help?

Those questions dominated Wall Street today amid rumors that the struggling investment bank had decided to put itself up for sale, after investors reacted negatively to the firm’s restructuring plan unveiled Wednesday.

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Lehman’s shares plunged as low as $3.79 and ended at $4.22, down $3.03, or 42%.

The company’s stock market value now is just below $3 billion -- making an acquisition feasible for a range of potential suitors, particularly if the federal government intervenes to grease a sale, as it did with Bear Stearns Cos.’ sale to JPMorgan Chase & Co. in March.

‘It’s a great play for somebody at this price,’ said Dan Alpert, managing director at Westwood Capital, a New York-based investment bank.

The leading contenders are believed to be Bank of America Corp. and British banks HSBC Holdings and Barclays. But other European, Japanese and Middle Eastern banks aren’t out of the question, analysts said.

The Wall Street Journal said Bank of America appeared to be loss-ridden Lehman’s best hope. Neither BofA nor Lehman would comment.

The Washington Post said the Federal Reserve and the Treasury were ‘talking to a wide range of firms and examining multiple scenarios’ to assist in the sale of Lehman. It wasn’t clear whether ‘assist’ meant government aid would be involved or the feds would simply help broker a deal.

However, sources told The Times that government aid was unlikely to be forthcoming.

WIth a $3 billion market value, Lehman could be in the cross-hairs of a private-equity firm such as Blackstone Group or money-management giant BlackRock Inc., said Richard X. Bove, an analyst at Ladenburg Thalmann.

‘They’ve got to sell the company, and they’re definitely going to sell it,’ Bove said. ‘My guess is within two weeks we will have a buyer.’

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But the continuing dive in the stock, despite the buyout rumors, indicated that investors doubted a buyer would pay much more than the current price.

The major risk for a suitor is that Lehman could suffer greater losses on its giant real estate portfolio -- the root of its troubles. So to get a deal done, buyers might demand that the government guarantee some of Lehman’s troubled assets, as the Fed did to entice JPMorgan to swallow Bear Stearns.

Naturally, the number of potential bidders would jump if the government offered help, analysts said.

The argument for federal assistance is that the collapse of Lehman -- a 158-year-old Wall Street institution -- could cause a domino effect in the financial system, given the extent of its investment holdings and its lending relationships with many other banks, brokerages, hedge funds and other players.

But a government-assisted sale of Lehman could spark a political firestorm, just days after the Treasury seized mortgage giants Fannie Mae and Freddie Mac and agreed to invest up to $100 billion of taxpayers’ money in each firm to keep them solvent.

What’s more, Lehman doesn’t appear to be in the same dire financial straits that Bear Stearns was in March. Other investment banks say they continue to trade with Lehman. And all big brokerages now have the ability to borrow short-term money from the Fed, a concession the central bank granted after Bear’s near-collapse.

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