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Massive Shifts on Wall St.

But other companies decided they didn't want to take over the distressed assets, leaving only the good ones for Bank of America or Barclays. They concluded that they would rather risk potential problems in the financial markets on Monday than plow their limited cash into a venture that would be expected to have poor returns. And the Fed and Treasury refused to make government money available.

On Capitol Hill, key lawmakers either declined to comment on the Lehman's fate or did not return calls. A spokesman for Sen. Charles E. Schumer (D-N.Y.), for whom the day's events represent a hometown crisis, said Schumer, who chairs the Joint Economic Committee, was withholding comment until the status of Lehman Brothers became clear.

Lehman confirmed early Monday that its holding company intends to file for Chapter 11 with the U.S. bankruptcy court for the Southern District of New York, and will make motions that would allow the firm to continue to pay employees and to keep its operations running.

Lehman also said it is exploring a sale of its broker-dealer operations, and confirmed it remains in advanced talks with "a number of potential purchasers" for its investment-management division, which includes Neuberger Berman and Lehman Brothers Asset Management. Those two subsidiaries will conduct business as usual and will not be subject to the bankruptcy case, Lehman said. Customers of Lehman and Neuberger Berman can continue to trade in their accounts, the company said.

Lehman's rank-and-file employees were unsure what they would find when they went to their offices Monday morning. "There's no word. It's not clear what's happening or what's going to happen," said a Lehman bond trader who spoke on condition of anonymity because of the sensitivity of the situation. On Friday, "we thought the options were clear, that either we got bought or we got sold off in small pieces. Nobody thought it was actually going to go to bankruptcy."

Lehman's dissolution has been gradual, over several months. If Bear Stearns experienced a run on the bank, Lehman has experienced a walk on the bank. That means that its various business partners have had time to bolster themselves for potential losses, and, in the view of these government officials, the risks to the system as a whole are therefore less.

It likely means the end of a Wall Street titan, a firm with 24,000 employees and 158 years of history. Lehman Brothers dates back to 1850, to a general store that Henry Lehman and two siblings opened in Montgomery, Ala. The brothers accepted cotton for cash and started a trading business on the side.

A century ago, the firm helped arrange financing for Sears Roebuck. It expanded globally through the twentieth century and became one of the top investment banks. A decade ago, chief executive Richard S. Fuld Jr. faced down rumors that the firm was on the brink of insolvency and put Lehman on an aggressive expansion course. In 2001, with its trading floors destroyed by the terrorist attacks in New York, he regrouped quickly, and the firm managed the first initial public offering to come to market after the attacks.

Fuld's aggressive and competitive nature is not uncommon on Wall Street, but friends and rivals have said the intensity with which Fuld expresses those traits are unmatched.

Lehman, which was outmuscled in merger advising and other traditional investment banking businesses, seized on the mortgage market as an area it could dominate in recent years.

Lehman, the number one underwriter of mortgage-backed bonds last year, amassed a giant portfolio of properties and mortgage-related securities. But the value of the assets began to sink last year amid a spike in mortgage defaults by homeowners with subprime credit.

Lehman shares have fallen from a high of $86.18 in February 2007, when the company's stock market value was approaching $50 billion, to Friday's closing price of $3.65, which left the firm with a market capitalization of $2.5 billion.

"Six months to the day since Bear Stearns went under, I'm viewing our experience in a whole new light," said John Ryding, a former Bear Stearns economist. "We were lucky to be first. We got out with $10 a share, which looked really bad at the time, but it looks a whole lot better than what Lehman shareholders are likely to get."

Staff writers David Cho, Binyamin Appelbaum and Lori Montgomery contributed to this report.


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