Frozen Assets

Below is a quick update on the Lehman Brothers frozen assets situation:

Despite a legal setback, the administrators of Lehman Brothers’ European arm still hopes to expedite the return of billions in frozen prime brokerage assets to the collapsed investment bank’s former clients.

Steven Pearson and Tony Lomas of PricewaterhouseCoopers told The Wall Street Journal that they plan to meet with Lehman’s clients, including hedge funds, today in an effort to find a way to speed the return of their money. If no deal can be reached, PwC has warned it could take years to unfreeze the assets at Lehman Brothers International Europe. source

Frozen Assets

Below is a quick update on the Lehman Brothers frozen assets situation:

Despite a legal setback, the administrators of Lehman Brothers’ European arm still hopes to expedite the return of billions in frozen prime brokerage assets to the collapsed investment bank’s former clients.

Steven Pearson and Tony Lomas of PricewaterhouseCoopers told The Wall Street Journal that they plan to meet with Lehman’s clients, including hedge funds, today in an effort to find a way to speed the return of their money. If no deal can be reached, PwC has warned it could take years to unfreeze the assets at Lehman Brothers International Europe. source

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Lehman Brothers Assets

Clients Fight for Assets Frozen in Lehman Brothers

Lehman Brothers International filed for bankruptcy in September and since then its clients have had their accounts frozen. These clients may finally be able to reclaim some of these assets by next year. Several hedge funds, insurance companies and PricewaterhouseCoopers have reached an agreement on the repayment process. When Lehman Brothers collapsed the clients’ assets were valued at $23 billion but after nine months the assets are now valued at $32 billion. Many hedge funds have been working to have their assets returned to them.

According to the NY Times:

Numerous hedge funds that used Lehman’s prime brokerage services in London, including Ramius, GLG Partners, Newport Global Opportunities Fund, Amber Capital and Harbinger Capital Partners, have been fighting for months to get their assets back.

RAB Capital shut at least two funds with assets entangled in the wreckage. Ramius, GLG, Legal and General Pensions Ltd., and Oceanwood Global Opportunities Master Fund are leading the creditors group, in addition to Lehman’s bankrupt American holding company.

The complex plan is meant to be a contractual compromise between the trustee and Lehman’s creditors, which number over 1,000, to avoid dealing with disputes on a case-by-case basis that could take years to fully work out. The proposal still needs to be approved by the High Court and at least 75 percent of creditors. Creditors will meet in October to decide on the plan.

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Richard Fuld

Lehman Brother CEO Richard S. Fuld Jr.

New York Magazine recently wrote up a very lengthy article on Richard Fuld, the CEO of Lehman Brothers who is blamed for driving the firm into the ground earlier this year. Here is a short excerpt from the article:

On June 11, Richard S. Fuld Jr., CEO of Lehman Brothers, sat down to lunch with a half-dozen of Lehman’s senior investment bankers. Since the fall of Bear Stearns in March, Fuld had been struggling to keep “the mother ship,” as Fuld liked to call his firm, from taking on water, but with little success. The stock was sinking quickly. In just a few months, Lehman had given back ten years of gains. Two days before the meeting, Lehman announced a second-quarter loss of $2.8 billion, its first negative quarter in fourteen years, causing the stock to plummet again, 21 percent in a couple of days. Fuld’s own people, their net worth evaporating, were losing confidence. Hugh Skip McGee, the global head of investment banking and for years a loyal Lehman employee, had requested the meeting. They gathered in Fuld’s private dining room on the 32nd floor of Lehman’s Seventh Avenue headquarters, a somber mahogany-paneled room, with a list of several demands, chief among them a change in leadership.“The board of directors is going to be under pressure,” said one banker. And then added, “It has to deliver a head to the street.”

At about five-eight, Fuld isn’t physically imposing. But he has intensely dark eyes and a deep, wide forehead that slopes so sharply it reminds some of a can opener. Those features, and a palpable inner intensity, give him an almost animalistic presence. “Through these little physical cues, he made it seem like [a situation] will lead to physical violence if you didn’t relent,” says one former executive.

“I’ve given you fourteen years of earnings. I have one bad quarter. This is how you respond?” Fuld shot back. The veins on his neck popped.

But the bankers pressed their case. Actually, they wanted two heads. They would spare Fuld the indignity of a coup, but they wanted him to fire Joe Gregory, Lehman’s president, and Erin Callan, Gregory’s protégée, whom he’d made CFO and who had been the public, sunny face of Lehman as it spiraled down. Firing Gregory would be personally devastating to Fuld, as the bankers knew. Over three decades at Lehman, the two had rarely sat more than a hundred feet from each other. Professionally, they were complements: Mr. Inside and Mr. Outside. Read more…

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Frozen Margin Calls

Margins Calls on Frozen Assets

The motivation to multi-prime increased more this week as hedge fund managers learn they may have to meet margin calls on securities which are frozen within Lehman Brothers. Here is a short excerpt from a news piece on this topic:
_____________________________________________

Oct. 15 (Bloomberg) — Lehman Brothers Holdings Inc.’s hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago.

Lehman’s London-based prime brokerage has about 3,500 active clients including hedge funds that own about $45 billion in securities, Steven Pearson, the partner at PricewaterhouseCoopers responsible for unraveling Lehman’s U.K. operations, said in an interview. They hold an additional $20 billion in short positions, or bets that prices will fall.

While investors are largely unable to access their Lehman accounts, the value of the securities continues to fluctuate along with the markets. The clients may be required to put up more collateral if the value of those securities drops, a process known as a margin call.

“If your bank fails, you still have to pay your mortgage,” Pearson, 43, said in an interview in Lehman’s Canary Wharf office. “Who is the holder of the risk of the securities? The hedge funds. If the value of the securities fell, they have to meet margin calls.” Source

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Frozen Margin Calls

Margins Calls on Frozen Assets

The motivation to multi-prime increased more this week as hedge fund managers learn they may have to meet margin calls on securities which are frozen within Lehman Brothers. Here is a short excerpt from a news piece on this topic:
_____________________________________________

Oct. 15 (Bloomberg) — Lehman Brothers Holdings Inc.’s hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago.

Lehman’s London-based prime brokerage has about 3,500 active clients including hedge funds that own about $45 billion in securities, Steven Pearson, the partner at PricewaterhouseCoopers responsible for unraveling Lehman’s U.K. operations, said in an interview. They hold an additional $20 billion in short positions, or bets that prices will fall.

While investors are largely unable to access their Lehman accounts, the value of the securities continues to fluctuate along with the markets. The clients may be required to put up more collateral if the value of those securities drops, a process known as a margin call.

“If your bank fails, you still have to pay your mortgage,” Pearson, 43, said in an interview in Lehman’s Canary Wharf office. “Who is the holder of the risk of the securities? The hedge funds. If the value of the securities fell, they have to meet margin calls.” Source

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Lehman Brothers Victims

Hedge Fund Victims of the Bankruptcy

The following is a short and far from exhaustive list of hedge funds which were recently affected by Lehman Brother’s bankruptcy.

• London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman
• Lehman Brothers Holdings Inc.’s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.
• Diamondback Capital Management LLC, a Stamford, Connecticut-based hedge fund, told investors that it had assets of $777 million stranded in Lehman
• Managers with a smaller percentage of assets in Lehman limbo include Harbinger Capital Partners, Amber Capital LP and Bay Harbour Management LLC, which are each based in New York, and RAB Capital Plc and GLG Partners Inc., both in London
• Darden Capital Management, an investment club run by students of the University of Virginia’s business school, has about $6 million in four funds that are stranded.

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Lehman Victims

Lehman Bankruptcy Victims | Hedge Funds

The following is a short and far from exhaustive list of hedge funds which were recently affected by Lehman Brother’s bankruptcy.

• London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.5 billion Multi-Strategy fund in part because of assets stuck at Lehman
• Lehman Brothers Holdings Inc.’s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. after 22 years in business.
• Diamondback Capital Management LLC, a Stamford, Connecticut-based hedge fund, told investors that it had assets of $777 million stranded in Lehman
• Managers with a smaller percentage of assets in Lehman limbo include Harbinger Capital Partners, Amber Capital LP and Bay Harbour Management LLC, which are each based in New York, and RAB Capital Plc and GLG Partners Inc., both in London
• Darden Capital Management, an investment club run by students of the University of Virginia’s business school, has about $6 million in four funds that are stranded.

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Lehman Bankruptcy

Lehman Brothers Bankruptcy Mess

Here is a Business Week article update on the mess with Lehman Brothers:

The Lehman Brothers bankruptcy is quickly becoming one giant mess. Scores of hedge funds that had hundreds of millions in cash and other securities parked with Lehman’s prime brokerage operation in London have had their accounts frozen. A number of these hedge funds have filed formal objections with the bankruptcy court and at least one fund, New York-based Bay Harbour Management, is mounting a legal challenge to the court’s hastily-approved sale of Lehman’s brokerage arm to Barclays Capital.

Now a new and even more troubling scenario is arising: legal disputes stemming from the estimated $1 trillion in derivatives transactions that Lehman had entered into on behalf of itself and some of its customers. Already, at least three lawsuits have been filed, alleging that nearly $600 million in collateral posted by some of Lehman’s trading partners in derivatives transactions hasn’t been returned and is in jeopardy of disappearing as the bankruptcy process unfolds.

To date, the most aggrieved of Lehman’s trading partners is Bank of America, which at onetime was considering buying Lehman as the investment firm was lurching towards bankruptcy. The Charlotte, NC based lender is seeking to recover nearly $500 million the bank “posted as collateral to “support derivative transactions between BofA and the respective Lehman Entities,’’ according to a lawsuit filed in New York State Supreme Court. Read more…

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Lehman Brothers

The Future of Lehman Brothers Private Equity

Lehman Brothers Holdings is a finance giant that has dominated the news this week with speculation that the firm would file for bankruptcy. This rumor was confirmed when Lehman Brothers filed for Chapter 11 bankruptcy protection on the morning of September 15, 2008.

In response, Lehman Brothers’ shares plummeted bringing the Dow Jones to its largest drop since the wake of September 11, 2001. Aside from the broader economic implications, what does this mean for Lehman Brothers’ substantial private equity business?

Since entering private equity in 1984, Lehman Brothers has been a major player in private equity by investing in merchant banking, venture capital, real estate, credit related investments, infrastructure and private fund investments. The private equity department of Lehman Brothers has amassed $30 billion in assets under management, according to the firm’s website. With a dim future for the company, the future of the private equity department is in jeopardy.

The only hope is to seek out potential buyers that would absorb the private equity branch. According to the Street Insider, the top firms that may buy the investment management division are limited to Bain Capital, Hellman & Friedman and Clayton Dubilier & Rice. Lehman Brothers will likely take its time searching out potential buyers and selling off the remaining assets of the company. The fall of Lehman Brothers Holdings is only the latest in a series of major blows to the market, following the government takeover of mortgage giants Freddie Mac and Fannie Mae. Ultimately, the impending purchase of the Lehman Brothers’ investment management division will decide how private equity is directly effected.

Lehman Brothers Private Equity WSJ

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Lehman Prime Broker

Lehman Prime Brokerage Services

Barclays Plc, the U.K.’s third- biggest bank, will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, three days after abandoning plans to buy the entire firm.

Barclays rose as much as 11 percent in London trading after it agreed to pay $250 million in cash for the Lehman operations and $1.5 billion for the New York headquarters and two data centers, it said today in a statement. The London-based bank plans to raise at least 600 million pounds ($1.1 billion) in a stock sale to help fund the deal and may buy other Lehman units.

“The purchase includes the equities and fixed-income sales, trading and research businesses, commodities and foreign exchange, merger advisory and prime brokerage units, Barclays said.” Read more…

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Global Aggregate Bond Index

Lehman Brothers Global Aggregate Bond Index

Covers the most liquid portion of the global investment grade fixed-rate bond market, including government, credit and collateralized securities.

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