A list of potential bidders for Lehman Brothers has been assembled, writes Proinsias O'Mahony

THE END-GAME appears to be in sight for Lehman Brothers, with the embattled investment bank expected to be offloaded in a fire sale as early as this weekend.

A litany of potential bidders have been mentioned, with a consortium led by Bank of America thought most likely. The consortium is thought to include financial investor JC Flowers Co and a Chinese sovereign wealth fund. Barclays Bank and private equity group Blackstone have also been mentioned.

HSBC and Deutsche Bank have essentially ruled themselves out of the running, whilst early talk of Goldman Sachs buying the firm has since dissipated.

US authorities are said to be involved in the discussions. While bidders would dearly love some sort of federal guarantee, government sources have been stressing that public money is unlikely to be used in any deal.

Cries of "bailout nation" in the wake of government rescues of Bear Stearns, Fannie Mae and Freddie Mac mean that another such deal would be challenging.

Last March, the Federal Reserve agreed to absorb as much as $29 billion (€20.4 billion) in potential losses in order to induce JPMorgan to buy Bear. This week, the government agreed to inject up to $200 billion into home loan giants Fannie Mae and Freddie Mac. Authorities are also thought to view the Lehman situation as a less grave one than Bear. The Bear bankruptcy shocked markets, with the firm trading around $30 in the days before its eventual "take-under" price of $2 (later revised to $10).

The long-running nature of the Lehman saga means market participants have had almost six months to manage exposure to the firm. The treasury has reportedly done stress-testing to measure the impact of a Lehman failure on the financial markets.

While markets have been very volatile all week, there are signs that investors are able to contemplate a world without Lehman. Despite Lehman falling by more than 40 per cent on Thursday, markets shrugged off early weakness to finish the day with strong gains.

Lehman is not the only financial to have suffered this week. Insurance giant AIG lost over a third of its value, with Washington Mutual suffering similar falls. The latter, faced with up to $19 billion in bad home loans, is thought to be considering selling parts of its branch network. Trader talk of "who's next?" has also brought mention of Merrill Lynch. Merrill, which has taken over $40 billion in write-downs and which retains large holdings of toxic debt, fell by almost 17 per cent on Thursday and saw another double-digit decline in early trading yesterday.

The current Lehman discussions were necessitated after the share price drubbing in the aftermath of the dismal results this week. These were rushed out over a week ahead of schedule after the share price fell by 45 per cent on Tuesday, following the withdrawal of Korea Development Bank from talks on a possible capital infusion. Lehman's $3.9 billion loss was the biggest in Lehman's 158-year history and investors rejected its plans to survive as an independent entity.

Despite CEO Dick Fuld's assertion that further write-downs were unlikely, investors were spooked by the fact that Lehman still had a $50 billion mortgage portfolio at the end of August.

A raft of analyst downgrades followed. A threatened credit rating downgrade from Moody's on the basis that Lehman needed a "stronger financial partner" saw takeover talk take on a new urgency. A reduction in Lehman's credit ratings would make borrowings more expensive as well as reducing the number of potential counterparties on financial transactions.

The threat of a downgrade meant that an urgent Lehman sale became a question of "when", not "if". It's a severe embarrassment for Fuld, who has refused several deals since June on the basis that they did not value the firm fairly.

While early reports suggested authorities were looking for any takeover to be concluded before the opening of Asian markets on Monday, it's thought the necessity of avoiding a credit rating downgrade is the main timing constraint. If a deal is being done, authorities may press the agencies into delaying any such downgrade.