FACTBOX: Possible outcomes for Lehman Brothers

NEW YORK (Reuters) - The Federal Reserve Bank of New York, the U.S. Treasury, the Securities and Exchange Commission and a group of major banks were meeting on Sunday to determine the fate of Lehman Brothers Holdings Inc.

Lehman, once the fourth-largest U.S. investment bank by market capitalization, has lost the confidence of investors as its balance sheet sags under the weight of more than $46 billion of mortgage-backed and asset-backed securities.

Below are the options being considered for Lehman, according to people briefed on the matter and a restructuring expert:

*A buyer steps in, with no government support. This is the preferred option for the Federal Reserve and the Treasury, which fear that supporting too many wobbly investment banks will encourage excessive risk taking.

Other major U.S. banks would likely agree to help finance Lehman's bad assets under this scenario. But working out who would finance how much would be difficult. Weaker banks have little capital to spare, while stronger banks would resist being penalized for playing the credit crisis well.

The lack of government support for Lehman could cause a painful and fast reassessment of credit risk in the U.S. financial system. Many banks and investors have been trading normally with investment banks, under the expectation that the U.S. government would support any that went out of business. If the government shows it is unwilling to provide support, other dealers could find themselves with little business, and perhaps even on the brink of bankruptcy.

*A buyer steps in, with government support. The preferred option for major U.S. banks and prospective buyers, which believe they should not have to pay for Lehman's sins, but that Lehman's demise may create systemic risk.

In this scenario, the government would likely support Lehman's bad assets, much as it did when JPMorgan Chase agreed to buy Bear Stearns in March. In that deal, the government agreed to guarantee $29 billion of assets.

But the government would add to the risk on its balance sheet, after bailing out Fannie Mae and Freddie Mac, and supporting JPMorgan's purchase of Bear Stearns. The government's mounting exposure to bad assets may erode investor confidence in Treasuries and the dollar.

*Nothing is resolved by Monday. Most major Asian markets are closed, but European and U.S. markets will likely panic. Dealers will likely try to rapidly unwind their positions with Lehman across many products, and accessing short-term financing through the repo markets will be difficult.

Lehman reported $42 billion of liquidity at its holding company as of the end of August, and can pledge additional assets to the Federal Reserve, but it is difficult for any financial company to survive if investors lack confidence in its ability to do so.

*Lehman files for bankruptcy: When this would happen is not clear, but in the absence of a rescue plan, the 158-year old firm would likely have no other choice. Bankruptcy would allow the orderly sale of Lehman's assets. Lehman would want the process of preparing for bankruptcy and getting through the process to take as little time as possible, because the longer it takes, the lower the value of its franchise.

Going into the bankruptcy process with an already-developed plan for liquidating assets would make the most sense as it would ensure the company is in bankruptcy for as little time as possible.

There are two options that involve filing for bankruptcy with a plan in place: a "prepackaged bankruptcy," where creditors and equity holders have already approved the plan, and a "prenegotiated bankruptcy," where leading stakeholders have negotiated a plan but have not received approvals from the requisite number of creditors and equityholders.

Of those options, a prenegotiated bankruptcy may be preferable, because it requires less preparation time before filing for bankruptcy.

(Reporting by Dan Wilchins; Editing by Ted Kerr)