ICMA-RC Statement Regarding Lehman Bros., AIG, Merrill Lynch, and Washington Mutual Developments

September 26, 2008

Developments involving certain large financial services institutions are having an impact on the financial markets.

• Lehman Brothers filed for bankruptcy protection under Chapter 11 on September 15, 2008.
• American International Group (AIG) reached an agreement with the Federal Reserve Board on September 16, 2008, under which AIG can borrow up to $85 billion from the Federal Reserve Bank of New York.
• On September 15, 2008, Bank of America Corporation announced an agreement to acquire Merrill Lynch & Co.
• On September 25, 2008, Washington Mutual’s banking operations were acquired by JPMorgan Chase & Co.

Further details concerning these developments are summarized below:

Lehman Brothers
Lehman Brothers Holdings, Inc., the fourth largest investment banking company in the U.S., sought Chapter 11 bankruptcy protection on September 15, 2008. Lehman Brothers had reported significant losses in the six months ended August 31, 2008, due primarily to its exposure to securities backed by subprime residential mortgages as well as commercial mortgages. Lehman's share price has declined substantially since the beginning of the year.

American International Group
AIG, the world’s largest insurance company, reached an agreement with the Federal Reserve Board on Tuesday, September 16, 2008.  Under the agreement, the Federal Reserve Bank of New York will provide AIG with a line of credit for two years, under which AIG will be able to borrow up to $85 billion.  AIG announced on Wednesday, September 24, 2008, that in exchange for the credit line from the Federal Reserve Bank of New York, AIG will issue convertible preferred stock for the benefit of the U.S. Treasury which, when converted into common shares, will provide the government with an approximately 79.9 percent ownership interest in AIG.

AIG reported significant losses for the six months ended June 30, 2008, due primarily to exposure to subprime mortgages. AIG's share price has declined over 90 percent since the beginning of the year.

Merrill Lynch & Co. and Bank of America Corp.
Merrill Lynch, the nation’s largest retail brokerage firm, agreed to be purchased by Bank of America Corp., one of the nation’s largest commercial banks, for approximately $50 billion in an all stock transaction. The acquisition is expected to close in the first quarter of 2009.

Washington Mutual Bank
On Thursday, September 25, 2008, the banking operations of Washington Mutual Bank, the nation’s largest thrift, were acquired by JPMorgan Chase & Co.  According to the Federal Deposit Insurance Corporation (FDIC), “All deposit accounts…have been transferred to JPMorgan Chase Bank.”  FDIC Chairman, Sheila Bair, also stated that “For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks.”

ICMA-RC continues to monitor developments. For more information read ICMA-RC's Q&A.