Weekend efforts to find a buyer for the troubled brokerage come to nothing. Talks to find a buyer for Lehman Brothers fell apart today, according to media reports. The thinking now -- early on Sunday evening -- is that either the Federal Reserve backs Lehman's liquidity for few days while Lehman mounts another "last-ditch" effort to find a buyer, or Lehman files for bankruptcy, perhaps by tonight.

Lehman has hired the New York-based law firm Weil Gotshal & Manges to advise on a possible bankruptcy filing, the Wall Street Journal said yesterday.

Lehman, supposed suitors Barclays and Bank of America as well as other big-name firms and top officials from the Fed and the U.S. Treasury Department had been in talks since Friday.

According to reports, Barclays declined to buy Lehman because it couldn't get the U.S. government or any of the firms to assume some of Lehman's devalued mortgage-related assets, said to be valued at $50 billion. The London-based bank is said to have pulled the plug early this afternoon.

Barclays has taken $7.6 billion in writedowns on its mortgage holdings over the past year.

A bigger shoe

Charlotte, N.C.-based Bank of America is said to have bowed out a few hours later -- and now it's said to be in merger talks with Merrill Lynch. In fact, some reports suggest that Merrill was as much of a focus of the meetings this weekend as Lehman, and that Bank of America was more intent on Merrill than Lehman in any case.

The U.S. Government, which last week stepped to rescue mortgage-market makers Freddie Mac and Fannie Mae by backing their debt and securities, had been working to get Wall Street firms to assume some or all of Lehman's real-estate-related assets to make a takeover of the rest of the firm feasible, according to reports.

The government didn't want to guarantee Lehman's obligations directly because Lehman -- unlike Bear Stearns, whose takeover by JPMorgan Chase it backed earlier this year -- "has access to a lending facility for [brokerages] that would permit an orderly process for unwinding the firm," according to an unnamed source cited by Bloomberg.

The government may also be worried about the precedent of stepping in to cushion the blow for a Lehman buyer with AIG and Washington Mutual said to be teetering on the brink as well.

Last week Lehman unveiled a plan to sell its asset-management, private-equity and wealth-management businesses and offload chunks of its commercial and residential real-estate portfolios.

The market reacted negatively to Lehman's plan. Some commentators said that selling the business units would leave Lehman with scant chances of making enough money to recover on its own steam.

Just in case

Today the International Swaps and Derivatives Association, a New York-based industry group, held a special trading session for OTC derivatives "to reduce risk associated with a potential [Lehman] bankruptcy filing."

The trades will be voided if Lehman doesn't file for bankruptcy by one minute to midnight tonight.

Lehman's share price was 95% lower than its 52-week high when trading ended on Friday.

Meanwhile Washington Mutual ended Friday's trading session 93% off its year high, AIG was down 83% and Merrill Lynch was down 78%.

In this environment, Barclays, whose ADR is 54% down from its 12-month high, and Bank of America, off 36%, rate as investor favorites.

U.S. stock-market futures plummeted this evening, mainly on Lehman's failure to find a buyer.

Financial-service companies have taken something like $515 billion in writedowns since the credit crisis began in the summer of 2007. -FWR

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