Lehman Considers 'Good Bank/Bad Bank' Split

Lehman Brothers is considering splitting itself into two banks, a “bad bank” to house its $30 billion in troubled mortgage and real estate holdings, and a “good bank” to carry on with the help of a new investor or two, the New York Times reports. The move, which is not unprecedented, may be necessary to re-instill confidence in the beleaguered institution.

Sheltering bad mortgage debt in the “bad bank” would offer shareholders a means to bet on commercial real estate’s turnaround while encouraging other institutions to do business with Lehman’s “good” arm. "Management is in a quandary—the commercial mortgage is performing too well to be dumped in a fire sale but, yet on the other hand, the equity market appears to want it gone," one analyst wrote this week. (More Lehman Brothers stories.)