Bet I know who was on the other side of those 900,000 derivative contracts....
The bosses of Lehman Brothers destroyed as much as $75 billion (£51.3 billion) of the company's value by rushing the stricken investment bank into a surprise bankruptcy filing, an analysis by Lehman's liquidators has found.
Bryan Marsal, co-chief executive of Alvarez & Marsal, the company that is restructuring Lehman, described the surprise bankruptcy filing on September 15 as "an unconscionable waste of value" that robbed the bank's unsecured creditors of much of the $200 billion they are owed.
Mr Marsal's report estimates that between $50 billion and $75 billion of assets that could have been used to repay creditors were wasted because Richard Fuld, Lehman's chief executive, and his lieutenants did not have an orderly wind-down plan.
Alvarez & Marsal were hired by Lehman's board at 10.30pm on September 14, just hours before Lehman made the biggest bankruptcy filing in US history. The Government had refused to bail out the bank, and Lehman's subsequent collapse set off a panic in stock markets around the world from which investors are still to recover.
Related Links
Mr Marsal said: "This filing, which was pretty much dictated to the board of directors at Lehman that weekend, occurred with no planning ... Had fundamental rules of crisis management been followed, much of the value that was lost by the unsecured creditrs would have been prevented."
Most of the loss of value occurred because the bankruptcy filing caused the bank to default on trading contracts with counterparties, immediately cancelling 900,000 separate derivatives contracts. These cancellations included contracts in which Lehman was owed money. If there had been on orderly unwinding of the contracts over several weeks, at least $50 billion could have been saved, the liquidators found.
Further value was destroyed when the unplanned bankruptcy forced down prices for Lehman's assets in a market that had already been artifically depressed by the shock collapse of the bank. This meant that the bank's trading and investment banking businesses were sold for less than $500 million although they had made about $4 billion in annual profits before the bankruptcy.
Unsecured creditors are expected to recover just $20 billion, or just 10 cents in every dollar they are owed, once the restructuring of the company is completed.
No comments:
Post a Comment