Lehman files for bankruptcy

Lehman Brothers Holdings, the investment bank, has filed for bankruptcy making it the latest high profile casualty of the credit crisis.

Late Sunday night, Lehman said it intends to file for protection under Chapter 11 of the US Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York.

The bank said none of its other US subsidiaries were included in the filing.

On news that the bank was negotiating with other financial institutions regarding a sale of the company, Standard & Poor's revised its CreditWatch from negative to developing.

If Lehman were to be acquired, we could raise the ratings, said S&P.

But the US government, which bailed out Fannie Mae and Freddie Mac and orchestrated a deal between JP Morgan Chase and Bear Stearns, refused to provide a financial backstop for potential buyers, according to reports. This lead the potential buyers to pull out.

The Lehman board authorized the filing of the Chapter 11 petition in order to protect its assets and maximize value, the firm said.

In the wake of the news, the Federal Reserve announced several initiatives to provide additional support to financial markets, including enhancements to its existing liquidity facilities.

Chairman Ben Bernanke said the steps, along with significant commitments from the private sector, were intended to mitigate the potential risks and disruptions to markets.

Elsewhere on Wall Street, Bank of America agreed to pay around $44bn to buy Merrill Lynch. According to reports, Bank of America will pay about $29 for each share of Merrill Lynch stock.