A sale of Lehman Brothers' European arm loomed as the next step in Wall Street's transformation as the main architect of a $700 billion US financial sector rescue plan warned lawmakers not to slow its progress.
Japanese firms are leading the rush to acquire US investment banking assets after top bank Mitsubishi UFJ Financial Group Inc said on Monday it would buy up to 20% of Morgan Stanley for as much as $8.5 billion and Nomura Holdings bought Lehman's franchise in Japan and Australia and 3,000 staff.
Despite progress in such deals, markets remained nervous about the fate of the bailout plan and European and Asian stocks fell, the dollar dipped and US government bonds edged up.
Architects of the controversial rescue said it was crucial that it should go ahead.
“We saw market turmoil reach a new level last week, and spill over into the rest of the economy,” US Treasury Secretary Henry Paulson said in remarks prepared for delivery to the Senate Banking Committee.
“We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.”
US Federal Reserve Chairman Ben Bernanke also weighed in:
“Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress,” he said in prepared remarks.
US lawmakers and the Bush Administration are trying to resolve differences so that legislation enabling the proposed bailout can begin to move through Congress, allowing the US Treasury to buy up toxic mortgage-related debt.
Lehman's investment banking operations in Europe, which employ about 6,000 staff mostly in London are next on the block, and sources familiar with the situation said Nomura is in talks to buy them, with a deal seen coming as early as Tuesday.
PricewaterhouseCoopers, administrators for the sale, said on Monday it was negotiating with just one bidder.
Insurance giant American International Group Inc should have a list of assets it wants to sell by next week, new Chief Executive Edward Liddy said on Monday. The Wall Street Journal reported, citing people familiar with the situation, that Canada's Toronto-Dominion Bank is among those weighing a bid for Washington Mutual Inc.
Singapore sovereign fund GIC said it still has plenty of cash after investing nearly $18 billion in UBS and Citigroup and would eye opportunities to invest in distressed assets in the United States.
Kuwait Investment Authority, the Gulf Arab state's sovereign wealth fund with stakes in Merrill Lynch and Citigroup, said it was eyeing investment opportunities abroad though was not in the business of bailing out struggling foreign banks.
“Disasters in the United States, some European countries or Asian countries create investment opportunities in the real estate sector, the financial industry or other sectors,” KIA Managing Director Bader al-Saad told Al Arabiya Television.
The FTSEurofirst 300 index of top European shares was off 2.1% in late morning trade while Germany's DAX was off 1.1%.
The DJ Stoxx banking index was down 3.9%.
Banks remained wary of lending to each other, as seen in overnight dollar borrowing rates which remained almost one percentage point above the US Federal Reserve's 2% target.
Britain's biggest home lender, HBOS, which sealed a takeover by UK bank Lloyds TSB last week, was down more than 10% after weak housing data sparked worries that its woes could linger despite the takeover.
“The risk has been transferred, it hasn't gone away,” said Mike Trippitt, analyst at Oriel Securities. (Reuters)