An official from the Federal Reserve Bank of New York said participants include Treasury Secretary Henry Paulson, Timothy Geithner, president of the Federal Reserve Bank of New York, and Securities and Exchange Commission Chairman Christopher Cox. The New York Fed official asked not to be named due to the sensitivity of the talks.
Participants in Saturday's discussions at the offices of the New York Fed also include executives from Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup and Merrill Lynch. Representatives for Lehman Brothers were not present during the discussions.
They were meeting on the heels of an emergency session convened Friday night by Geithner - the Fed's point person on financial crises.
Federal Reserve Chairman Ben Bernanke is actively engaged in the deliberations but wasn't in attendance.
Geithner convened the meeting Friday evening, and told bankers gathered at the New York Fed's imposing building in downtown Manhattan to come up with a solution or risk being the next to go under, said investment banking officials with direct knowledge of the talks.
They discussed the current financial crisis, and were asked to come back Saturday with solutions that did not involve any financial intervention by the government, the officials said. They spoke on condition of anonymity because the talks were ongoing.
Fed and Treasury officials are aiming for a private-sector rescue for the troubled firm. Options include selling Lehman outright or breaking it up into pieces to be sold to private firms.
Potential buyers could include Bank of America Corp., Britain's Barclay's Plc, Japan's Nomura Securities, France's BNP Paribas and Deutsche Bank AG. All have declined to comment.
Participants in Saturday's meeting were also trying to tackle a broader agenda that includes problems at American International Group Inc. and Washington Mutual Inc., said the investment bank officials, who were briefed on the talks.
AIG, the world's largest insurer, and WaMu, the nation's biggest savings bank, have taken steep losses during the past year from risky investments. Investors, worried they do not have enough cash on their balance sheets to withstand further hits, unloaded their shares on Friday.
AIG's shares dropped about 31 percent on Friday. WaMu's shares shed about 3.5 percent. Shares of investment bank Merrill Lynch & Co. Inc. also lost 12.3 percent.
Lehman Brothers and AIG are the top priorities, said the investment banking officials. WaMu insisted Friday it has adequate capital to fund its operations even as it announced another multibillion dollar write-down on bad mortgage loans.
WaMu has 76 percent of its deposits insured by the Federal Deposit Insurance Corp., an independent agency created by Congress to insure deposits in banks and thrifts up to at least $100,000.
AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.
Global fears intensified Saturday that Lehman's collapse would stagger markets and undercut confidence in the U.S. financial system.
U.S. regulators face growing pressure from abroad to find a way out ahead of Monday's reopening of Asian markets. Germany's Finance Minister Peer Steinbrueck urged that a resolution be found before then, warning ominously, "the news that is coming out of the U.S. is bad."
Lehman Brothers Holdings Inc. put itself on the block earlier this week. Bad bets on real-estate holdings - which have factored into bank failures and taken out other financial companies - have thrust the 158-year-old firm in peril. Its stock has been hammered and it has been dogged by growing doubts about whether other financial institutions would continue to do business with it.
Government officials want to avoid a Bear Stearns-like bailout; the Fed in March agreed to provide a loan of nearly $29 billion as part of JPMorgan Chase & Co.'s takeover of the firm. Unlike Bear, Lehman can go directly to the Fed to draw emergency loans if it needs a quick source of ready cash. In recent weeks, though, there's been no indication that Lehman has done so.
Bear's sudden meltdown led the Fed to engage in its broadest use of lending powers since the 1930s. Fearful that other firms could be in jeopardy, the Fed temporarily opened its emergency lending program to investment firms, a privilege that for years was granted only to commercial banks, which are subject to tighter regulation.
Those actions - along with the Bush administration's take over of mortgage giants Fannie Mae and Freddie Mac just last week - have spurred concerns that taxpayers could be on the hook for billions of dollars and companies will be encouraged to take on extra risks because they believe the government will come to their aid.
Paulson and Bernanke, however, have said they needed to help Bear Stearns and Fannie Mae and Freddie Mac to avert a financial calamity that would devastate the national economy.
Friday's session seemed to bring back memories of the New York Fed's role - a decade ago - in bringing together top financial executives to avert the collapse of hedge fund Long-Term Capital Management.
Lehman Brothers Chief Executive Richard S. Fuld in 1998 participated in LTCM's rescue. The fund's investments in emerging markets faced collapse when a financial crisis in Russia caused that country to default on its debt, an event that would have triggered a ripple effect throughout global markets.
A consortium of financial companies that included JPMorgan, Deutsche Bank and Goldman Sachs injected $3.6 billion into LTCM to avoid a broad liquidation of the fund's assets. Bear Stearns was the only major Wall Street bank that didn't participate in the bailout.
Lehman's Fuld is currently a member of the New York Fed's board of directors.
