Investors fear domino effect after Lehman Brothers folds

Lehman Brothers
The headquarters of the Lehman Brothers investment bank on Sixth Avenue September 14, 2008 in New York City. The troubled Wall Street investment bank moved closer to collapse today as British bank Barclays pulled out of talks.
Photo by Michael Nagle/Getty Images

Stocks are headed for a sharply lower open and Treasury bond prices are soaring as investors react to a stunning reshaping of the Wall Street landscape.

Markets worldwide are slumping over the news of Merrill Lynch's forced sale to Bank of America, coupled with Lehman Brothers' Chapter 11 filing.

Next up, the world's largest insurance company is asking the Federal Reserve for emergency funding. American International Group says it'll also make a major restructuring announcement today.

London branch
A Lehman Brothers employee speaks to the media after leaving the Lehman Brothers European Headquarters building in Canary Wharf in east London on September 15, 2008.
BEN STANSALL/AFP/Getty Images

Lehman Brothers filed for bankruptcy protection under the weight of $60 billion in soured real estate holdings,

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The company's filing for Chapter 11 protection will allow it to restructure while creditor claims are held at bay. The filing was made Monday in the U.S. Bankruptcy Court in the Southern Disctrict of New York.

Lehman's last hope of surviving outside of court protection faded Sunday after British bank Barclays PLC withdrew its bid to buy the investment bank.

The 158-year-old investment bank had said earlier that none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.

Investors fear this could have a domino effect, bringing more troubles for banks and financial institutions.

Lehman Brothers
The headquarters of the Lehman Brothers investment bank on Sixth Avenue 2008 in New York City.
Photo by Michael Nagle/Getty Images

Dow Jones industrial average futures fell 372, or 3.3 percent, to 11,086. Standard & Poor's 500 index futures fell 48.00, or 3.81 percent, to 1,210.50. Nasdaq 100 index futures fell 49.25, or 2.8 percent, to 1,730.25.

In the meantime, bond prices are up as investors flock to the security of government debt.