Around the Street: Louder Lehman Buzz

Investing pros and blogs are in consensus that a sale of storied investment bank Lehman Brothers could be announced as soon as this weekend

Investors and the financial media have concluded that a sale of troubled investment bank Lehman Brothers (LEH) is imminent, with a strong possibility that a deal could be reached over the weekend. According to a Financial Times report, Bank of America (BAC), private equity group J.C. Flowers & Co., and China Investment Corp., the Chinese sovereign wealth fund, are considering a possible joint bid for Lehman. Barclays (BCS) is also considering a separate deal, according to the FT.

In the meantime, Lehman's shares continue to suffer, with the stock down another 7% on Sept. 12.

Here is a roundup of what Wall Street pros and blogs are saying about the struggles of Lehman and other financial firms under the gun on Sept. 12, as compiled by BusinessWeek.com and Standard & Poor's MarketScope.

Action Economics

The cost of default protection is on the rise as Lehman's problems and concerns over the health of the economy heighten worries over defaults. Earnings reports from major financial institutions are due out over the near term, and expectations for more big writedowns. Lehman's [credit default swaps] is up another 158 basis points today to 662 bps. Meanwhile, American International Group (AIG) has been feeling the heat as well. Its CDS is up 92 bps today (and is up almost 350 bps this week) to a record 780 bps on fears its credit rating will be cut. Sellers are also asking money up front for the first time as well.

Earlier today, the CDS on the banking sector, the Markit iTraxx Financial index of 25 European banks fell 5 bps to 88 bps on hopes that there would be a Lehman takeover. Also, the CDR Counterparty Risk index rose 9.1 bps to 190.75 bps today, according to Bloomberg, the highest since the Bear Stearns collapse, where the index topped out at 250.09 on March 14.

Tony Crescenzi, chief bond market strategist, Miller Tabak

No dealers borrowed from the Federal Reserve's Primary Dealer Credit Facility in the week ended Wednesday, but the nation's commercial banks borrowed $23.5 billion. The new statistics indicate the money market is operating fairly normally for the dealer community, in particular the $4 trillion repo market, but the money market for banks is relatively more problematic. The divergence reflects the rapid pace at which dealers have been able to shrink their balance sheets, and hence their need for capital, versus the difficulties that bankers are having in replenishing their diminished capital. The zero borrowing from the Fed's PDCF of course means that Lehman did not borrow from the Fed in the week ended Wednesday. Investors appear to be putting a short timeline on the time that Lehman needs to raise capital, which means that next Thursday's PDCF data won't take on the degree of concentration that investors placed on yesterday's data.