AIG, Lehman Brothers and Merrill Lynch: A Turbulent Week

New York, NYIt has been a week of shocking news for the financial industry, particularly involving AIG, Lehman Brothers and Merrill Lynch. One company has been taken over by the fed while another declared bankruptcy. The third institution has been bought out by Bank of America. And while things appear to have leveled off a bit, investors wonder if this week's events are simply a forecast of more turbulent times to come.

Earlier this week, American International Group (AIG) announced that it was in financial trouble. The Fed stepped in, giving AIG an $85 billion loan in exchange for up to 80 percent ownership in the insurance giant. The Fed will also replace AIG's management. However, that loan comes with a price—it must be paid back within 2 years and the interest rate, at 11.5 percent, is high. Now, AIG's managers are left to determine how to come up with the required money. This could include breaking up AIG and selling it off.

Meanwhile, Barclays PLC, a British bank, has purchased some of Lehman Brothers' assets after Lehman Brothers announced it was filing for bankruptcy protection. Barclays has purchased Lehman's North American investment banking, trading and research divisions and Lehman's company headquarters and 2 data centers. The total cost to Barclays is approximately $1.75 billion in cash. The transaction has been given initial approval by a bankruptcy judge.

On Monday, Lehman Brothers filed the biggest bankruptcy in U.S. history. The company is now trying to sell off its assets. Although Barclays purchased some of Lehman's assets, there are still parts of the firm available, including its Neuberger Berman money management unit. That unit is being used as collateral for a $450 million loan from Barclays to pay lawyers, financial advisors and other staff as the Barclays deal closes.

Another former financial powerhouse, Merrill Lynch, announced earlier this week that it was being bought by Bank of America for $50 billion in stock. Merrill Lynch fell into trouble with subprime loans and the housing market crisis. In the week before it was sold, Merrill Lynch's stock price dropped 36 percent. Since the announcement of the Bank of America agreement, Merrill Lynch's stock has increased 17 percent.

Bank of America could combine Merrill Lynch's brokers with its own wealth advisors. However, some reports indicate that Bank of America plans to sell Lynch's brokerage services to its own customers.

All this turmoil has some people understandably concerned about the future of the financial industry—and the trickle-down effect that could be caused by this week's events. Already this year Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, AIG and Lehman Brothers have had serious financial problems, and not all of the companies that received financial help are out of the woods yet. Investors can be forgiven for wondering what will come next.