Lehman's Long Weekend

Now that weekend bank trouble is becoming as common an event as football or church, will Lehman Brothers (LEH) be gone by the time world markets open late Sunday?

A fire-sale buyout looks likely, since Treasury Secretary Henry Paulson is reportedly "adamant" that government money won't be used to bail out the listing investment bank. A step to help Lehman would be an admission that A) the Fed is still willing to blindly backstop the financial system, and B) that all of its efforts so far don't appear to be working.

So the buyers are lining up, or at least standing around waiting to see if the government's position shifts.

Bank of America is in the lead as a buyer, reportedly in a partnership with JC Flowers and China Investment Corp., the Chinese sovereign wealth fund, although no deal is assured. Barclays, the British bank, and Japan's Nomura also are reported to be interested. All sorts of other candidates, including Lehman execs themselves, are being floated.

S&P says it would be good for Bank of America, with or without government backing:

After further analysis, we believe that there is enough of a safety margin between LEH's current book value and current equity valuation to make a deal worthwhile even without government backing. BAC could benefit not only from an attractive purchase price but also from the diversification of its revenue stream as well as further international exposure.

Others agree. "I believe that Bank of America will win the auction for Lehman Brothers. There is a natural fit between the two companies," Richard Bove, longtime bank analyst with Ladenburg Thalmann, said in a note.

What's good for Bank of America would likely be good for the rest of America, too. Resolving Lehman matters a lot for the rest of the financial sector. Shares of Merrill Lynch (MER) and American International Group (AIG) are sinking too, as the cost of insuring their debt climbs, and at a time when both need to be able to raise capital. The sooner Lehman's fate is decided, the sooner more stable assets will recover.

If not, waking up next week in a world without Lehman Brothers may just ruin a few more weekends to come, as government and bank efforts to restore confidence in the financial system will face yet another severe setback.