Tuesday, September 15, 2009

Lehman Brothers One Year After in London and Still Unraveling

On one-year anniversary of Lehman Brothers' bankruptcy, which many say triggered the global credit freeze and the stock market collapse, there were articles and commentaries about "what lesson we have learned (if any)". But the tone of most articles was rather muted, which I believe reflects a resilient stock market that has refused to go down since March low, and also reflects a growing consensus (right or wrong) that we're on our way to miraculous recovery with no jobs. Overall, the Lehman anniversary articles were rather pedestrian.

On the other hand, across the Atlantic, BBC Radio aired a very interesting program featuring two accountants sent to Lehman as administrators to sort out the mess and wind down the company's London-based operation. The "mess" is an understatement; as one of the accountants say near the end, "the most complex insolvency ever."

The accountants, Tony Lomas and Steven Pearson of PriceWaterhouseCoopers, speak to Steve Evans in the program Business Daily, aired on September 10. The interview is about 18 minutes long, and you can listen to the program by clicking the link (it opens in a new window).

They tell Evans that they still have over 400 Lehman people working with them. Lehman Brothers still has enormous balance sheet of over $1 trillion, loaded with very complex assets - derivatives and structured finance products, they say.

After one year, they are still in awe how complex and comprehensive the business environment is in a large financial institution like Lehman. And how unfathomable the risk is. They say they are just starting to unravel some of the complexities of the positions with some of the bigger clients.

"Almost a year on, we still have large household-name counterparties out there who have NOT reconciled their position with Lehman. They have not worked out exactly what they think Lehman owes them, or what they owe Lehman... Because of the complexities of the relationship, they still can't finalize what their position is with us, all these months on."

"All it happened here, is the market stopped believing. Suddenly this enormous organization that's been around for 100 years fell apart. It could have been a number of other market counterparties; it happened to be Lehman but it could have been a number of others. If we end up without vote of confidence again, you could have this sort of thing again..."


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