The “biggest reshaping of the financial industry since the Great Depression”

By Matrix | Published: September 16, 2008

In the biggest reshaping of the financial industry since the Great Depression, two of Wall Street’s most storied firms, Merrill Lynch & Co. and Lehman Brothers Holdings Inc., headed toward extinction.

New York-based Lehman, founded 158 years ago, said early today that it filed for bankruptcy protection after failing to find a buyer. Merrill Lynch, 94 years old and also based in New York, agreed to sell itself to Bank of America Corp. for $50 billion in an emergency deal hashed out yesterday.

“The tectonic plates beneath the world financial system are shifting, and there is going to be a new financial world order that will be born of this,” said Peter Kenny, managing director at Knight Capital Group Inc., the Jersey City, New Jersey-based brokerage that handles about $1 trillion worth of stock transactions a quarter. “It’s an ugly and painful process.”

The engines that powered record growth in the financial industry over the past decade — cheap credit and surging property values — have been thrust into reverse. Companies that once thrived on making real estate loans and holding assets bought with borrowed money are now under siege, giving the upper hand to those less reliant on leverage and holding the fewest assets tied to property.