Executives at Lehman Brothers, the 158-year-old Wall Street bank that has been brought to the brink of collapse, are set for a long weekend of negotiation as potential acquirers pored over its books and regulators agitated for a deal to restore confidence to battered financial markets.

Officials from the United States Treasury and the Federal Reserve were still insisting last night that no federal money should be used to bail out Lehman or to tempt buyers into doing a deal, but all the signs suggested they were hoping to tie up a resolution before Asian markets reopen for trading at the end of the weekend.

Lehman shares suffered a double-digit percentage plunge for the fifth straight day, as Dick Fuld, the chief executive, fought to manage an orderly end to the independence of the company he has run since 1993. His plan, revealed earlier in the week, to shed assets and raise new cash to restore Lehman's capital position appeared dead in the water yesterday.

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It was believed that Bank of America, one of the country's largest banks, was in pole position to lead a takeover at a knock-down price, potentially in partnership with other financial institutions with an interest in acquiring particular parts of Lehman. B of A would be interested in the core investment banking franchise, and it was believed to be examining a joint bid with the private equity group JC Flowers, which has been trying to buy Lehman's cash-generative asset management business.

China Investment Co, an investment arm of the Chinese government, would join the consortium to gain control of Lehman's extensive portfolio of commercial real estate, it was reported. Meanwhile, the UK's Barclays Bank, whose Barclays Capital business has become one of the most influential investment banks in recent years, was also following the likely carve-up and could make an opportunistic bid. However, insiders there were mindful that Bob Diamond, Barclays Capital's chief executive, has previously said he prefers to win business rather than buy it, and poach staff rather than see them join reluctantly via a takeover.

It remained uncertain whether a deal could really be knitted together over the weekend, given the uncertain value of the commercial and residential mortgages on Lehman's balance sheet.

The speed with which the company's fortunes have deteriorated over the past week has come as a harsh blow to its 25,000-strong staff around the world, including at its European headquarters in Canary Wharf, where it employs about 4,500 people. Lehman laid off more than 1,000 people this week in a desperate bid to save money – its fourth such purge in a year – but thousands more face losing their jobs if the company is carved up.

Dick Bove, the respected banking sector analyst at Ladenburg Thalmann, said a takeover of Lehman would be a big plus for Bank of America, whose foray into investment banking has so far been only a mixed success. A month ago, Mr Bove chastised Mr Fuld for not accepting the inevitable and accepting bids for the company or its assets at prevailing market prices. By waiting, Mr Fuld has lost everything, and the value that shareholders would get from a carve-up today is now just a fraction of those prices.

"I believe that Bank of America will win the auction for Lehman," Mr Bove predicted yesterday. "There is a natural fit between the two companies."

If a deal is done, B of A would get access to one of the best fixed-income trading desks in the country, which it could link with its own retail business in credit cards, and it becomes a "first rank player" in the equity investment banking sector. He added: "It gains five years in its pursuit to be the nation's number one underwriter."

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There was no suggestion yesterday that Lehman was having trouble financing its remaining trading obligations, and therefore no immediate threat of losses by its trading partners and the wider financial system. It was that threat that prompted the Fed to offer a $29bn loan to JPMorgan Chase to persuade it to acquire Bear Stearns, when it came to the brink of collapse in March. Since then, investment banks have been given access to the Fed's so-called discount window, where they can borrow to finance their day-to-day trading needs.

Next in the firing line

While the problems for Lehman continued to mount, many on Wall Street were speculating on which institution might come under attack next from anxious investors.

*WASHINGTON MUTUAL

JP Morgan was reported yesterday to be in advanced talks for a "white knight" bid for the country's largest savings and loan business, which has been on Wall Street's list of dangerously underfunded institutions for many months.

Its failure would be the biggest ever in US banking. WaMu shares have lost 80 per cent of their value this year and regulators, belatedly, want to know what the Seattle-based group is doing about the toxic commercial and residential mortgages on its books.

It ousted Kerry Killinger, its chief executive of 18 years, on Monday, and on Thursday, Moody's downgraded some of WaMu debt to junk status, saying the company has limited financial flexibility and is suffering from a lack of confidence in the debt market. The company said it had access to $50bn (£28bn) of liquidity.

*American International Group

AIG is one of the world's largest insurers and financial services companies. It was lured from its tried and trusted business into more exotic areas of financial markets, and its losses this year – more than $13bn and counting – have left its reputation for prudence in tatters.

The company is under investigation over claims it inappropriately accounted for all the derivatives on its books. A new chief executive, Robert Willumstad, has promised a review of the business by 25 September.

The shares were down 20 per cent just yesterday morning on concerns that it needs to raise more capital – something that is tough to do when there is so much uncertainty. Bill Bergman, an analyst at Morningstar, warned clients to stay away this week. "AIG has been hit squarely between the eyes by the housing finance meltdown," he said. "It originated mortgage loans, insured mortgages, wrote credit default swaps backing securities based on mortgage debt, and invested in mortgage and other asset-backed securities. It did so in a big way, and it lost."

*MERRILL LYNCH

As soon as Bear Stearns went under in March, investors turned their attention to Lehman Brothers, the standalone investment bank with the next-weakest balance sheet. If Lehman could succumb to the crisis of confidence in the industry, then attention naturally turns to the next one up the chain: Merrill Lynch. The No 3 investment bank was quick to act when the credit crisis struck, ousting the chief executive who had pioneered its headlong rush into mortgage derivatives, Stan O'Neal, last November, and his successor, John Thain, sold off some of the derivatives at firesale prices, just to be shot of the risks.

None of this will be enough to save the company, however, if the market decides that the investment banking model is fundamentally broken, and that such institutions are just too risky and volatile to survive, unless bolted on to a more traditional bank.