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Lehman on critical list

• Robert Peston
• 12 Sep 08, 10:27 AM

The game is up for , the fourth largest US investment bank.

Talking to bankers overnight, it's clear that has lost confidence in its capacity to survive as an independent - which is only to state the obvious given what's been happening to the price of its bonds and its shares.

What's done for it is its $54bn of unwritten-down illiquid commercial and residential property assets - the equivalent of being weighted down by a concrete block in the middle of the Hudson River.

So it needs to find a bigger, sounder bank to rescue it and fast. As I mentioned earlier this week, is being touted as the most likely saviour, if any can be strong-armed by regulators into swallowing this big, bloated and poisoned beast (our own will try to pick up Lehman's better people, in what might be described as muscular pragmatism - but Barclays shareholders would go bananas if it took over the whole ailing thing).

But will anyone take on the risk without some support from taxpayers?

The may - so soon after propping up - have to provide some backstop underwriting for Lehman, so that an orderly resolution of Lehman's woes can be achieved.

When confidence in a bank erodes, it ebbs at first and then is gone in a great whoosh. Lehman will be lucky to end the day as an independent bank.

UPDATE: 17:51

Lehman is racing to meet a deadline of Sunday night to find a new owner for the troubled bank.

Bankers close to Lehman warn that failure to conclude a deal by then would be devastating for confidence in the fourth largest Wall Street firm.

"If a solution isn't found by the time Asia opens for business on Mondau, well the consequences would be disastrous" said a senior banker.

He added that the US Treasury was working assiduously behind the scenes to facilitate a takeover of the bank.

The leading candidate to buy Lehman for a knockdown price is Bank of America, although Lehman is talking to a number of other potential bidders.

Lehman's fund management business, which is in relatively good shape, may be sold separately.

UPDATE: 18:56

Barclays position on Lehman has changed during the day. It is now looking at playing a role in the rescue of the troubled investment bank, by buying all or part of it.

But a US solution, led by Bank of America, is still the most likely outcome.

I suspect it won't be many hours before we see the detail of the rescue plan.

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