Was Lehmans really bankrupt?
Chris Sermon
Semi-retired Financial Regulation specialist, School Governor, Risk advisor and Pet Therapy volunteer.
PwC, as administrator of Lehman Brothers International Europe (‘LBIE’ - essentially the non-US business) recently made a distribution of ￡4bn to LBIE creditors, out of a total surplus of around ￡8bn accumulated after costs and the repayment of unsecured creditors in full. This is an outstanding result compared to the gloomy forecasts ten years ago; and should mean that LBIE’s clients and creditors will have recovered their assets in full, with (very generous) statutory interest on top for many. In fact, the outcome is so good that it is tempting to ask whether LBIE could have avoided insolvency completely?
Sadly, this was never an option. In the first place, LBIE’s parent company Lehman Brothers Holdings Inc (‘LBI’) triggered the process by filing in the US the previous day. As LBIE was entirely dependent on LBI for its day to day operations, continuing independently was completely impossible. All of LBIE’s books and records were maintained by LBI. LBIE didn’t even have its own bank accounts! Rebuilding those books and records was a major factor in why the administration has taken so long. And before you ask: yes, LBI really was insolvent! The return to general creditors in the US is still below 40%.
At the time, the expectation was that there would be a significant shortfall at LBIE, and a great deal was made over assets provided by clients which had been traded or ‘rehypothecated’ in the market. To my mind, the key message here is not that those expectations were wrong, but that nobody at LBIE at the time had a clear enough understanding of the true position to be able to say otherwise.
And this brings us to the lasting Legacy from LBIE - an absolute need for clear and effective governance oversight of all client-related activities: whether these are performed in-house; offshored to another location; shared services with related entities; or outsourced to a third party.
Well done to the PwC team and remaining staff at LBIE for getting us this far. I’ve had the privilege of working alongside many of them.
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6 年No all fees paid and debts honoured just too many egos and poor Bush management team
Senior Analyst at Commerzbank AG
6 年Maybe in 2028 we know more
Legal Professional Services | Legal Projects | Legal Technology | Legal Service Delivery | Legal Project manager | Managed Services | Derivatives SME
6 年Would just like to say that the employees of LBIE still lost out. Many had share options which they were using as their pensionable assets which proved to worth nil . I like to think that in part the recovery of 4BN was due to the fine legal skills of the transaction management team and their derivative documentation expertise. I had the privilege to work in this team and can say for the most part they were incredibly good at what they did.
Managing Director - AXIA Ventures Group Milan
6 年40 cents on the dollar to date for LBI unsecured creditors and 100% for LBIE creditors is a very remarkable result 10 years down the road, having sold the Investment Banking Business for... peanuts.
Global Advisor and Program Executive - Business-Technology Transformations - PMP?, PMI-ACP?
6 年Well done!