Bloomberg has a fantastic article today about how Lehman’s decaying corpse is suing a bunch of former clients, many of them wee and sympathetic nonprofits, who hosed Lehman when they terminated swaps in September 2008. Some of these lawsuits turn on disputes over when those clients, or their consultants, should have valued the swaps for termination purposes, and I was looking forward to reading Bloomberg’s account of which of those customers used the SWPM <go> function on their terminals and on what dates, but for some reason that wasn’t mentioned.
The basic story is that clients had trades with Lehman that were in-the-money to Lehman, and when Lehman went bankrupt the clients terminated the trades and wired Lehman termination payments that Lehman now rather belatedly finds inadequate. You could understand why the clients would want to get out of these trades: for one thing, the trades had moved against the clients (thus being in-the-money to Lehman) and seemed likely to move further against them1; for another, if the trades did move back in the clients’ favor, what were the odds that a freshly bankrupted Lehman would pay the clients what they were owed?
Is Lehman right that the clients underpaid? Oh, I mean, of course. I don’t have the details of the trades but you can reason this out from first principles. Here:
- It’s September 15, 2008, and Lehman has just filed for bankruptcy.
- You owe Lehman some money.
- How much you owe them is a somewhat subjective matter that depends on what termination date you pick, what model you use, whom you ask for a quote, etc.
- You know, with some certainty, that everyone at Lehman who knows anything about your trade, and also everyone who doesn’t, has bigger things to worry about, like stealing office supplies on their way out the door.
- You can basically write them a check and enclose a note saying “here’s what we think we owe you,” and see if they write back.
- How big is the check?
Read more »
Yesterday Citi sued Barclays over an indemnity that Barclays gave Citi during the collapse of Lehman Brothers, and while, yes, the lawsuit is boring in the way that only lawsuits over indemnities can be, I’m nonetheless going to tell you about it under the heading “laugh at Citi doing stupid stuff.” The stupid stuff here is roughly:
- Citi was the clearing bank for Lehman Brothers FX trades, with gross exposures in the tens of billions of dollars.1
- Lehman ran into some trouble in September 2008, as you may have heard.
- On September 9, 2008, one week before Lehman’s bankruptcy filing, Citi decided it might be a good idea to get some security for its Lehman FX clearing exposure, in the form of getting set-off rights against $2 billion that Lehman Brothers Holdings (the public parent company) had on deposit at Citi.
- On September 15, 2008, after Lehman Brothers Holdings had filed for bankruptcy, Citi decided that it might not be a good idea to continue extending credit to Lehman Brothers Inc. (the non-bankrupt broker-dealer subsidiary) and so terminated its FX clearing arrangement.
- Lehman Brothers Inc. begged Citi to reconsider, and Citi agreed to provide basically two more days of clearing (through September 17) in exchange for $1 billion of new collateral posted by Lehman.
- Lehman Brothers Inc. continued to not pay Citi amounts that it owed.
- So Citi again stopped clearing for Lehman.
- This time Barclays, which had agreed to purchase the Lehman U.S. broker-dealer operations, begged Citi to reconsider, and Citi agreed to provide basically two more days of clearing (through September 19) in exchange for $700mm in new collateral posted by Barclays.
- Lehman Brothers Inc. again continued to not pay Citi amounts that it owed, and was placed into SIPC liquidation on September 19.
- Citi again stopped clearing for Lehman, for real this time, and closed out its positions at a loss of something like $1,260mm.
- It set off $1bn of these losses against the collateral posted by Lehman.
- Then Barclays called Citi, in October 2008, and asked if it could have its $700mm of collateral back.
- Citi said yes!2 Read more »
Creditors of the former investment bank in the U.S. and Europe will get everything back. Creditors in Australia are not so lucky. Read more »
The former Lehman CFO is mystified that her recent New York Times column would make people think she was unhappy.
“I feel like I got to live an amazing life, and I’m still living an amazing life. But there was a time that came, naturally, for reflection,” Ms. Callan says in excerpts of the NBC interview released Friday morning. “There was a punctuation point in my life….”
Ms. Callan expressed regret in The Times essay about how she let her work consume her life. But it was “surprising” to her that some readers interpreted that to mean she was “very sad,” Ms. Callan says in the new interview.
I mean, what sounds so bad about any of the following? Read more »
The Bros holding company is looking to sell its Ritz-Carlton Kapalua, if you happen to be the market and want to do their creditors a solid. (They also need a broker, if anyone’s got a license.) The place comes with 463 rooms, six restaurants, two golf courses, and a spa; if you act fast, they’ll throw in a couple of Hawaiian shirts once worn by Dick Fuld and never before seen footage of him working the drums during a company luau. [Bloomberg]
There are a lot of things that, if you wanted to, you could legitimately blame on former JP Morgan employee London P. Whale. The $6.2 billion trading loss the bank incurred over the summer. Ina Drew getting fired. This awkward phone call. Some stuff you can’t pin on him, though many have tried: male pattern baldness, the bombing of Pearl Harbor, Apple Maps, Lehman Brothers’ bankruptcy, tempting as it may be. Read more »
Lehman Brothers’ former Manhattan headquarters is now unmistakably the New York base of an even more discredited (if still solvent) bank. But the bankrupt if lucrative shell of a company still owns a big midtown building—one that it took over two years after it filed for bankruptcy. Now, it’s unloading it for a song. Read more »
The historic Lehman Brothers bankruptcy has hit another milestone: $2 billion in fees paid to professionals. In a Thursday filing with U.S. Bankruptcy Court in Manhattan, Lehman said it has spent $160.8 million in fees since exiting from bankruptcy in March. Added to the $1.9 billion it incurred during its 42 months in bankruptcy, the failed investment bank has eclipsed $2 billion in fees paid. That’s the most in the nation’s history. Lehman previously stated that it incurred less than $1.8 billion in fees before leaving Chapter 11 protection in March but disclosed in the Thursday filing that the number increased by $132 million in recent months for several reasons, including the payment of incentive fees to professionals as well as approvals of older applications. [WSJ]
Joe Gregory has been forced to put his Long Island-chic manse on the market. Dick Fuld’s been pounding the pavement for months with nothing to show for it. Bella is still dead. Not a lot to celebrate and yet some people have managed to do pretty okay for themselves despite having spent time at 745 7th Avenue. Erin Callan, as you may have heard, is happily married to firefighter Anthony Montella and living in a $3.9 million house in the Hamptons and Evelyn Stevens, who actually worked at another firm before leaving Wall Street but should know that if you so much as set foot in the lobby of the building, you’ll be branded a Lehman Brother or Sister for life, just competed in her first Olympics and no longer counts herself among financial services employees who spend their days fantasizing about a life that doesn’t so closely resemble hell. Read more »
The former Lehman Brothers chief operating officer and close personal friend of Dick Fuld has reportedly put his Lloyd Harbor. For $22 million you get a 15,000-square-foot main house, a 6,000-square-foot guest house, nine acres, 6 bedrooms, 8.5 baths, a 7 car garage, what appears to be a duplex apartment for shoes, and a little piece of history. Plus, you’d read be helping out the guy, who never collected his $230 million in deferred compensation. [Dealbook]
One tale many love to tell about Richard S. Fuld, besides the one involving him destroying an 158 year-old institution, is that of the time he got into a fistfight at his son’s hockey game, with a parent from the opposing team. Though there have been many stories over the years of adults who lack impulse control throwing down at their children’s sporting events, perhaps people were fascinated by the fact that the the CEO of a public company was unable to reason that punching someone in the face at a Peewee hockey game (or anywhere in public? or anywhere period?) = bad, keeping your hands to yourself = good. On that note, one sports fan reports that Fuld has since matured, and realizing his own limitations, now travels with protection (for himself/spectators in his section). Read more »