The fate of Lehman Brothers darkened early Sunday afternoon with Barclays, the sole remaining bidder for the 158-year-old Wall Street firm, telling federal regulators that it is walking away from a transaction, people familiar with the matter say.

The situation was rapidly evolving, and it's possible Barclays or another bidder would emerge to save Lehman before markets opened Monday. But with the government balking at putting any taxpayer money at risk for Lehman, the likelihood of a transaction was dimming. That would leave an orderly liquidation as the most likely scenario, a dramatic outcome for a once-powerful firm.