Lehman, AIG and Merrill keep sliding; WaMu gets a lift

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Where things stand today in the latest chapter of the Great American Financial System Crisis:

--- Shares of Lehman Bros. Holdings Inc. were down 72 cents to $3.50 at about 10:40 a.m. PDT as investors continued to expect a worst-case scenario -- either the company fails or it is sold to another financial giant for an extremely low price. Speculation continues to center on Bank of America Corp. as the most likely buyer. BofA was up 1 cent to $33.07.

London’s Financial Times reported that BofA, private equity firm J.C. Flowers & Co. and China Investment Co., the Chinese sovereign wealth fund, were considering a possible joint bid.

All of the reports from Washington say the Bush administration will not commit public money to grease a deal. Sources tell my colleague Peter G. Gosselin in Washington that policymakers are adamant that there won’t be government assistance.

--- While the Lehman mess appears to be nearing some resolution, sellers again are targeting what they see as the next weakest links in the chain -- insurance giant American International Group and brokerage Merrill Lynch & Co., both of which, like Lehman, have been reeling from mortgage-related losses.

AIG was down $4.50, or 26%, to $13.05; Merrill was off $2.19, or 11%, to $17.24.

--- Washington Mutual Inc., the nation’s largest S&L, was trading higher on talk that JPMorgan Chase & Co. could step in to buy the loss-ridden lender. The stock was up 22 cents to $3.05 at about 10:40 a.m. PDT. JPMorgan was off 87 cents to $40.78.

The American Banker newspaper reported today that WaMu was in ‘advanced discussions’ to sell itself to JPMorgan. The talks ‘are ongoing at the highest levels of both companies’ the newspaper said.

But CNBC reported just after 11 a.m. PDT that the two weren’t in negotiations.

Somebody’s gotta be wrong here. The companies had no comment.

Goldman Sachs & Co. upgraded WaMu from ‘sell’ to ‘neutral’ citing the company’s insistence on Thursday that it has adequate capital to weather the credit market storm.

--- The stock market overall was weakening after rallying off its morning lows. The Dow Jones industrial average was off 79.54 points, or 0.7%, to 11,354.17.