SAN FRANCISCO (MarketWatch) -- The forced breakup of Lehman Bros. or even its liquidation became a possible scenario over the weekend as talks dragged on unsuccessfully Saturday between top U.S. financial officials and executives at major Wall Street firms trying to forestall the collapse of the investment firm and to keep weakness among financials from spreading.

According to a report in the online edition of the Wall Street Journal citing people familiar with the matter, the outlines of a rescue plan emerged, but at the same time talks revealed that a sale of the entire firm LEH, to a big bank could probably not be managed.

The Federal Reserve Bank of New York, Treasury officials and banking executives have been meeting since Friday evening in the hopes of engineering a plan for a private-sector rescue for the once-venerable investment firm before Asian markets open for trading Monday.

Shortly before 7 p.m. Eastern on Saturday, media outlets reported that no deal had been reached over Lehman's fate but that negotiations would likely continue between the Fed and bank executives on Sunday.

As expectations of a deal swung to doubt, the Journal reported, plans emerged for firms to either buy pieces of Lehman or for an orderly winding down of the firm.

The Journal said that under one scenario, Barclays PLC BCS, -0.60% or Bank of America Corp. BAC, -1.32% would buy Lehman's valuable assets, such as its equities business, while the more risky real-estate assets would be merged into a another entity that would contain about $85 billion in souring assets.

Other Wall Street firms would try to inject some capital into that "bad bank" so that a flood of bad assets doesn't deluge the market, damaging the value of similar assets held by other banks and insurers, according to the report. The banks are also looking for the government to somehow support the bad bank.

An earlier story in the Journal reported that Treasury Secretary Henry Paulson has made it clear to participants in the talks, called Friday by the New York Federal Reserve, that no government bailout for Lehman should be expected.

The Journal reported that while teams of bankers are working on the plans, it appears few banks are in a position to provide enough funding. Many banks are inclined to preserve capital ahead of third-quarter and year-end cash preservation moves. Also, the report noted, banks don't want to see rivals such as Barclays or Bank of America pay so little for the valuable assets.

Citing people familiar with the matter, the Journal said Bank of America, until today considered Lehman's most likely savior, seems to be less interested in a deal. Neither Barclays nor Bank of America wants to buy all of Lehman without some government assistance, the Journal said.

In addition to Paulson, New York Fed President Timothy Geithner and Securities and Exchange Commission Chairman Christopher Cox were present at the weekend talks. According to media reports, Federal Reserve Chairman Ben Bernanke is involved in the deliberations, but did not attend Friday night's meeting.

The Wall Street executives attending included Morgan Stanley MS, -2.35% Chief Executive John Mack, Merrill Lynch MER, +27.69% Chief Executive John Thain, J.P. Morgan Chase JPM, -0.84% CEO Jamie Dimon, Goldman Sachs Group GS, -1.14% CEO Lloyd Blankfein, Citigroup Inc. C, -2.12% head Vikram Pandit and representatives from the Royal Bank of Scotland Group PLC RBS, -2.42% and Bank of New York Mellon Corp., as well as others, according to the Journal.

As hopes fade for a sale, a second group of bankers reportedly is weighing the alternative of liquidating the firm's business, according to reports.

The Journal reported many Wall Street traders met Saturday to weigh their options if Lehman is forced into liquidation. One unnamed trader said conditions in the credit default swap market and the short-term repo markets are more stable today than they were in March, when Bear Stearns nearly collapsed, but said that if Lehman is forced to liquidate, Monday could be a grim day for financial markets.

Global concerns intensify

Global fears intensified over the weekend that the possible collapse of the country's fourth-largest investment bank would hurt markets and damage confidence.

German Finance Minister Peer Steinbrueck said Saturday said he hopes there will be an end to the uncertainty over the fate of Lehman before Monday.

"You have to ask the parties involved in the U.S.," Steinbrueck said at a press conference in Nice, France following a meeting of finance ministers and central bankers from the European Union. "But we're hearing that the U.S. authorities are trying to find a solution by Monday and before Asian markets open."

Speaking alongside Steinbrueck, Bundesbank President Axel Weber said the German central bank has been in contact with the country's banks and is aware of their individual exposures to Lehman. Weber said that if a Lehman resolution is found, "the impact should be limited."

The exposure of Dutch banks to Lehman isn't a cause for worry, Dutch Finance Minister Wouter Bos said. Bos told reporters at the Nice event that "it's hard to predict" what the outcome of Lehman's difficulties will be. But he said Dutch banks aren't at seriously at risk however things turn out. "I'm not worried," he said. "All I can do is make sure that my policies are robust."

Bos said he doesn't expect the turbulence in global financial markets to ease any time soon. "I would like (the turmoil) to end and in that sense I am worried," Bos said. "There will be a correction in financial markets for some time to come. If there's a dominant characteristic then it's uncertainty."

Shares of the once-thriving Lehman slumped another 13% Friday on concern the sale may come at a distressed price. See full story.

Bank of America, J.C. Flowers, and the Chinese sovereign wealth fund China Investment Co. had been considering a joint bid for Lehman, the Financial Times reported on its Web site Friday.

Lehman got bids for its asset-management business from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc. The offers value the unit at about $5 billion, Bloomberg News reported, citing unidentified people familiar with the auction.

Subprime crisis still shudders

This weekend's negotiations show that, after more than a year, the credit crunch is still crushing firms that only recently dominated the world of finance.

Bear Stearns, the fourth-largest U.S. investment bank, was bailed out in March, while Fannie Mae FNM, and Freddie Mac FRE, -0.64% , two giants that control most of the country's mortgage market, were seized by the government a week ago.

After starting life as a cotton trading firm in Montgomery, Ala. more than 150 years ago, Lehman grew into the third-largest U.S. brokerage firm behind Morgan Stanley and Goldman Sachs. It was a fixed-income powerhouse and the largest mortgage underwriter.

Lehman's mortgage business, while hugely profitable during the recent housing boom, proved its undoing as home prices slumped, foreclosures surged and the commercial real estate market began to crack.

In its latest quarter, Lehman reported a net loss of almost $4 billion after more than $5 billion of new write-downs, mostly on soured mortgage exposures. Read full story.