Long-Term Capital in Talks With Banks to Save Fund

Long-Term Capital Management, the once- high-flying hedge fund run by a former Salomon Bros. bond whiz, teetered on the brink of collapse Wednesday after losing billions of dollars in the recent global economic turmoil, bank officials said.

The officials, who spoke on condition that they not be identified, said Long-Term was in talks with several investment and commercial banks about raising new funds to pay off clamoring creditors.

But the future of the 6-year-old fund, run by John Meriwether, former head of the bond trading desk at Salomon Bros., was in doubt Wednesday as bankers considered various options.

The Federal Reserve Bank of New York was brought into the negotiations, bankers said, with liquidation of the firm a possibility. The bankers said the firm has lost nearly 80% of its capital, which was estimated at $4.8 billion at the start of the year.

Both the Fed and Long-Term Capital declined to comment.

The fund has borrowed heavily from several Wall Street houses. It was reported to have investments worth more than $20 billion, with a capital base of $4 billion, before the losses were announced Sept. 2.

Given the extensive leverage, any liquidation would result in large losses to several investment banks in New York.