Former Formula One shareholder Lehman Brothers has applied for bankruptcy protection via the American courts following another dramatic twist in the global financial markets.
The fourth biggest financial institution in the United States, Lehman Brothers launched its petition for protection when takeover talks with Barclays faltered, its rival apparently scared off by the failure to secure guaranteed government money to prop up the ailing institution. Lehman, founded by cotton-trading German immigrants 158 years ago, is collapsing under the weight of so-called 'toxic assets', mostly related to equally-desperate US real estate industry, that are now worth a fraction of their original value.
Without help, Lehman looks likely to become Wall Street's highest profile bankruptcy since junk bond specialist Drexel Burnham Lambert succumbed in 1990, and along with the news that Bank of America is to buy up Merrill Lynch, could see three of the five most famous US investment banks disappearing inside six months, after Bear Stearns was acquired in a fire sale by JPMorgan in March.
Lehman Brothers became involved in Formula One when German media company Kirch borrowed €1.6 billion from Bayerische Landesbank, Lehman and JPMorgan Chase to raise Speed Investments' share of Bernie Ecclestone's SLEC to 75 per cent. However, when Kirch, which controlled the board of Formula One Holdings, was placed in to receivership due to huge losses in 2002, the banks divided its share of SLEC amongst themselves.
That involvement ended in November 2005, when CVC Capital Partners confirmed that it was to acquire a majority shareholding in SLEC, initially acquiring the stakes held by the Ecclestone-owned Bambino Holdings and Bayerische Landesbank, then, a month later, those of JPMorgan Chase. It took full control of the Formula One Group by purchasing the 14.1 per cent stake held by Lehman Brothers on 30 March 2006.
Ecclestone, meanwhile, used the proceeds of the sale of Bambino Holdings' share to invest in CVC's Alpha Prema arm to give his family an unspecified stake in the offshoot that nominally controls F1.
Lehman, too, reinvested in CVC's Alpha Topco offshoot on the understanding that the business would not pay a dividend. The bank apparently owns a 16 per cent stake the Jersey-based company.