CNBC reports that, according to an analysis by JPMorgan Chase, the Bear Stearns debacle earlier this year could have brought down Lehman Brothers, Merrill Lynch and Morgan Stanley.

According to the news agency, an analysis undertaken by JPMorgan revealed that the counterparty exposure that each of these firms had to Bear Stearns last March was such that any one (or all three) could have failed if Bear hadn't been rescued by JPMorgan, and was forced into bankruptcy instead. CNBC also says that 'some people at JPMorgan weighed letting Bear and the rest fail because they would have eliminated at least two and possibly four competitors in about a week'. In the end, says CNBC,  JPMorgan decided to proceed with its Bear rescue, partly due to pressure from the US Federal Reserve, and partly because Bear could be picked-up for a steal.

In the meantime, Bloomberg reports that Bill Gross, co-chief investment officer of bond fund PIMCO, spooked the markets Thursday by urging the US Treasury to start to use more of its cash to support the financial system, or face a 'financial tsunami'. On a post on the firm's website, Gross warned: 'Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami. If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the US Treasury'.

The news agency also reports that Goldman Sachs has added Merrill Lynch to its 'conviction sell' list, saying that the firm may post additional asset writedowns this year. A research note issued this week said: 'Merrill currently trades at the highest price-to-book multiple in our large-cap universe, despite having some of the most significant exposures to troubled assets such as CDOs, mortgages and leveraged loans. With these markets still under pressure, we believe additional write-downs and book value deterioration will continue to plague the stock'.

Reuters reports that Lehman Brothers is thought to be mulling over shifting some $32bn in commercial mortgage and real estate assets into a 'bad bank'. Bloomberg says that the 'bad bank' is being referred to internally at Lehman as Spinco. The move would allow the 'good bank' to get on with making money, while the 'bad bank' works through its problems. In the event that the plan goes ahead, Lehman would probably contribute around $8bn in equity, with $24bn coming in the form of  debt or from investors.

The Evening Standard reports that Japan's Mitsubishi UFJ Financial is in the process of laying off 90 staff in its 590-person London-based capital markets operation.

Finally, Bloomberg reports that Moody's Investors Services has said that it may cut the ratings on $1.2bn of constant proportion debt obligations, after revealing a coding error in the model used to rate these products. Richard Cantor, Moody's chief credit officer, described the error as 'modest but material'.

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