Lehman Bros files for bankruptcy

[Chris Coles]

The fourth-largest investment bank in the US, Lehman Brothers, says it will file for bankruptcy protection, amid a growing global financial crisis.

Lehman had incurred losses of billions of dollars in the US mortgage market.
The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.

http://news.bbc.co.uk/1/hi/business/7615931.stm

[Supercilious]

Re: Lehman Bros files for bankruptcy

The fourth-largest investment bank in the US, Lehman Brothers, says it will file for bankruptcy protection, amid a growing global financial crisis.

Lehman had incurred losses of billions of dollars in the US mortgage market.
The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.

http://news.bbc.co.uk/1/hi/business/7615931.stm

I have a question. If Lehman' s debt is backed by that bad CDO paper they wanted to get rid off (and now is accepted by Fed as a collateral) and since a bankruptcy is a default event, doesn't this mean all Lehman's bad paper will be transferred to the other banks sellers of Lehman's CDS ?

Doesn't that means that eventually all this bad CDO paper will be used as collateral by Lehman's counterparties to take more loans from the Fed?

In the end isn't that a bailout by the taxpayer?

[D-Mack]

Re: Lehman Bros files for bankruptcy

Lehman Files For Chapter 11 (Reorganization), Derivatives Liquidate AnywaySep 15, 2008

Lehman officially files for Chapter 11 (reorganization) bankruptcy; meanwhile, Neuberger Berman, LLC and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of its parent, and its portfolio management, research and operating functions remain intact

SEC confirms that securities that a customer holds at a brokerage firm are legally the investor's property and aren't exposed to the claims of the firm's creditors. Under either Chapter 7 or 11, derivatives have 'close-out' seniority privileges where contracts are not 'stayed' as other claims in a bankruptcy filing; instead, a collateral liquidation occurs immediately --> could lead to potential disruptions in the asset markets

LEH further pursues strategic sale of brokerage and asset management arm

Federal Reserve expands eligible collateral for lending facilities in order to mitigate disruption

ISDA initiates 'netting' process in the OTC derivatives markets to offset bilateral trades

Background of Lehman's Fall Into Bankruptcy

Aborted Super-SIV initiative in December shows that private sector is reluctant to back 'bad bank' without government financing help and subsidize acquirer of good bank. Authorities are reluctant to backstop Lehman obligation as they did with Bear Stearns because after having access to Fed lending facilities it is clear that Lehman is insolvent, not illiquid as Bear Stearns was when the run occurred, or as LTCM was in 1998--> lender of last resort is not justified in those cases and BS intervention was already borderline legal for a non-commercial bank. 'Too interconnected to fail' in the CDS market is again an issue.



...

http://www.rgemonitor.com/

video with Roubini

http://www.bloomberg.com/avp/avp.htm...SBVu4jp7qY.asf

[Supercilious]

Re: Lehman Bros files for bankruptcy

It seems this is Lehman's laundry list:

http://blog.rebeltraders.net/wp-cont...w-case-doc.pdf

[Slimprofits]

Re: Lehman Bros files for bankruptcy

It seems this is Lehman's laundry list:

http://blog.rebeltraders.net/wp-cont...w-case-doc.pdf

thanks for posting that....

Here is a breakdown written last week Written by Mark Heschmeyer on the website of CoStar Group (CRE media).

For the purposes of this Watch List, let's look at what Lehman wants to do with its real estate assets.

Lehman Brothers took several steps to reduce its real estate portfolio significantly in the third quarter. The firm reduced its residential mortgage exposure by 31% to $17.2 billion.

In addition, Lehman Brothers is formally negotiating with BlackRock Financial Management Inc. to sell approximately $4 billion of the firm's UK residential mortgage portfolio and expects to complete the sale within the next few weeks.

More importantly on the commercial real estate side, Lehman Brothers said it reduced its commercial real estate exposure by 18% in the third quarter from $39.8 billion to $32.6 billion.

Its concentration of positions in commercial real estate-related assets has become a significant concern for investors and creditors, the company acknowledged. Thus, it intends to spin off $25 billion to $30 billion of its commercial real estate portfolio to its shareholders in a separate publicly traded company, Real Estate Investments Global (REI Global), in the first quarter of 2009.

That move would "mitigate the potential for future writedowns," Lehman officials said. Transferring the vast majority of the commercial real estate portfolio to REI Global would also mean Lehman would not to be forced into a fire sale of the assets or as it put it " below what REI Global believes to be their intrinsic value."

In discussing the action in a teleconference call yesterday, Lehman said its real estate assets breakdown as follows:

• 57% are in America, 26% in Europe and 17% in Asia
• 58% are debt, 26% is equities and 16% are securities

At the time of formation of REI Global, Lehman said it would inject about 20% to 25% of capital into the new firm. In the conference call, one investment analyst speculated, and Lehman confirmed, that move must be an indication that any offers Lehman has received for its commercial real estate assets thus far are coming in at 20% to 25% less than at which Lehman has them valued.

[..]

Of Lehman's projected loss of $3.9 billion this quarter, Lehman's Fixed Income Capital Markets group is expected to report a loss of $4.6 billion. Fixed Income is the group under which Lehman includes its commercial real estate. So without its real estate holdings, Lehman would still be making money.

[Supercilious]

Re: Lehman Bros files for bankruptcy

So the largest unsecured claims are Citi and Mellon, the rest is relative peanuts

[Slimprofits]

Re: Lehman Bros files for bankruptcy

So the largest unsecured claims are Citi and Mellon, the rest is relative peanuts

Mellon responds bizjournals.com:

Contrary to published reports, the Bank of New York Mellon Corp. is not among Lehman’s largest unsecured creditors, according to a spokesman.

Gruendl said BNY Mellon has no outstanding loans to bankrupted investment bank Lehman Brothers & Co. and that it serves as a trustee for certain Lehman bond offering.

“Often there is a common misunderstanding of the role that we play when serving as a trustee,” BNY Mellon spokesman Ron Gruendl said via e-mail. “In our role as trustee, we facilitate the payment of interest and principal between the issuer of debt and investors as well as other services.”

[..]

“The Bank of New York Mellon’s policy is not to comment on individual client relationships, but the corporation is clarifying inaccurate information circulating in the marketplace," Gruendl said.

BNY Mellon “said they have minimal direct exposure,” said Thomas McCrohan, director of equity research at Janney Montgomery Scott, a Philadelphia-based investment firm.

[Supercilious]

Re: Lehman Bros files for bankruptcy

Mellon responds bizjournals.com:

Mellon is technically correct but they are full of it. They have directly only $12 bil in Lehman's debt.

For the rest of $138 bil in unsecured debt they are trustees together with Citi:

http://www.telegraph.co.uk/money/mai...ankrupt116.xml

Documents submitted with the group's bankruptcy filing reveal that Citigroup and Bank of New York Mellon are trustees to $138bn of Lehman bonds, topping the list of unsecured claims.

The question is who owns who and that's Mellon's exposure to those $138 bil in unsecured debt. I bet that most of that if not all is 144A ....

https://tracs.bnymellon.com/