With no bids to buy on the table and no offers of a government bailout, Lehman Brothers may be set to fall, according to strategist Sherry Cooper from BMO Capital Markets.

She said after the U.S. government bailout of Fannie Mae and Freddie Mac last week, "politically, taxpayer support for Lehman or other financial firms, has reached its limit."

Still, Cooper said "the situation remains quite fluid," and that if Bank of America does end up buying Lehman, it will have to cut its dividend. She pointed out they've already just bought troubled subprime lender Countrywide Financial as well as Chicago's Lasalle Bank.

The International Swaps and Derivatives Association (ISDA) said in a statement that traders at global financial firms have been working over the weekend to figure out their net exposure to Lehman credit.

A report from Bloomberg said there was an ISDA netting trading session this afternoon in New York, and that "trades are contingent on a bankruptcy filing at or before 11:59 p.m. EDT¥if there is no filing, the trades cease to exist."

Cooper said that at the Fed meeting on Tuesday, the policy statement will be "scoured for any change in bias or comments regarding current financial instability."

She said that if a deal to buy Lehman does go through, a relief rally in the stock market is likely on Monday, but if not, "safe-haven investments will be popular."

By Megan Ainscow and edited by Stephen Huebl
©CEP News Ltd. 2008