Bank Crisis: Lehman Files Bankruptcy, Bank of America to Buy Merrill for $50 Billion

The current economic downturn claimed its largest victims over the weekend, with Wall Street stalwart Lehman Brothers filing for bankruptcy and Bank of America agreeing to purchase Merrill Lynch for about half of its value earlier in the year.

Lehman Brothers Monday formally filed for Chapter 11 bankruptcy protection after spending all weekend in hard negotiations with potential buyers. When the Federal Reserve refused to put any taxpayer money into the deal, the 158-year old investment house was forced to file for bankruptcy protection.

In its Chapter 11 filing, Lehman claimed to owe $613 billion to 100,000 different creditors. During the bankruptcy reorganization, Lehman is expected to liquidate many of its business units.

The firm was forced into the Chapter 11 position after takeover talks with Bank of America and UK-based Barclays fell apart Sunday.

Bank of America found another troubled Wall Street giant to throw its money into. The company announced that it would buy Merrill Lynch for $50 billion, or roughly $29 per share. Although the price represents a huge premium over the company’s current share price, Merrill’s shares were trading above $50 in May and as high as $80 less than a year ago.

With the purchase, Bank of America adds the largest brokerage house in the world in addition to adding investment banking strength.

News of the historic moves hit Wall Street hard on Monday as the Dow Jones Industrial Average opened 300 points lower on fears that more massive failures were to come.

Former Fed Chairman Alan Greenspan did not help the mood Sunday on the morning Washington talk circuit. Appearing on ABC’s “This Week,” Greenspan said that the current financial crisis is a “once-in-a-century type of event.” Greenspan also said that he feels there is a “less than 50 percent” chance the U.S. will escape the current crisis without a recession.