US TREASURY secretary Hank Paulson and the Federal Reserve have all but ruled out the provision of any government funds to aid Lehman Brothers, the troubled Wall Street bank which is frantically trying to find a buyer this weekend to ensure the survival of its business.
Amid speculation that Lehman's talks with the government would end this weekend, concern that the bank may fail to find a buyer as a result of the reluctance to provide financial backing sent the bank's shares plummeting to a 14-year low yesterday.
The stock lost as much as 19 per cent in afternoon trading yesterday.
The threat to Lehman helped drag down the shares of other leading financial groups, with investment bank Merrill Lynch losing 11 per cent of its value and insurer AIG losing as much as one-third of its value.
After rescuing wholesale mortgage banks Fannie Mae and Freddie Mac last weekend and assisting in the bail-out of Bear Stearns in March, the US government is reluctant to intervene in Lehman's struggle to avoid collapse. Its stance signals it wants to rein in the use of federal safety nets to ease turmoil in the financial system.
Irish financials had a mixed day, as Irish Life Permanent (ILP) and AIB regained some of the ground they lost since Lehman's troubles overshadowed the market bounce that followed the rescue of Fannie and Freddie.
ILP finished 3.05 per cent higher at €6.75 in Dublin last night, and AIB gained 1.66 per cent to close at €7.98.
But there was no turnaround for Bank of Ireland, which lost 1.47 per cent to close at €5.01½, or for Anglo Irish Bank, which lost 0.59 per cent to close at €5.04.
With the Iseq index rising by 0.82 per cent, European markets at large finished in positive territory even as uncertainty persisted about Lehman's fate.
Amid reports that Bank of America, private equity investor JC Flowers and Chinese sovereign wealth fund China Investment Co were considering a possible joint bid for Lehman, it emerged that Mr Paulson was adamantly opposed to using government money to help the bank.
Sources familiar with Mr Paulson's thinking said Wall Street had been aware of the bank's troubles for a long time and had time to prepare for any crisis at the company. The access Lehman has to loans from the Federal Reserve will allow an orderly process, the sources said.
It also emerged that officials in the Fed, the US central bank, are aligned with Mr Paulson and have a strong predisposition against the use of government money.
The public nature of these positions signals that any buyers of Lehman will not have the same deal as JPMorgan, which bought Bear Stearns after the Fed agreed to take on Bear assets worth $29 billion.
Senator Richard Shelby, the top-ranking Republican on the Senate banking committee, said on US television that the treasury and the Fed were trying to work a deal that involved no US government money.
However, he said he could not guarantee such support would not be needed at some point to prevent Lehman from collapsing.
"I'm hoping that some big firm will want them more than the Fed wants them," he said.
Alan Greenspan, former chairman of the Fed, told US television yesterday the loss of investor confidence in Lehman's would best be resolved by Wall Street firms acting without federal aid. - (Additional reporting: Financial Timesservice, Bloomberg, Reuters).
