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Dec-29-2008Lehman bankruptcy filing wiped out billions - WSJ(topic overview)
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An analysis by Lehman Brothers Holdings Inc.' s restructuring professionals shows the company's emergency bankruptcy filing could have eliminated up to $75 billion in potential value for its creditors, The Wall Street Journal reported Monday. Had Lehman Brothers been able to pursue a more orderly filing -including the sale of assets prior to filing for bankruptcy protection--the bank might have had time to sort out its derivatives portfolio and a maintained some value, the Journal reported from an analysis by Alvarez & Marsal, the bankruptcy advisors. [1] NEW YORK, Dec 29 (Reuters) - Lehman Brothers Holdings Inc's (LEHMQ.PK: Quote, Profile, Research ) emergency bankruptcy filing wiped out as much as $75 billion of potential value for creditors, The Wall Street Journal reported on Monday, citing an analysis by the bank's restructuring advisers.[2]
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.[3] As much as $75 billion of Lehman Brothers Holdings Inc. value was destroyed by the unplanned and chaotic form of the firm's bankruptcy filing in September, according to an internal analysis by the company's restructuring advisers.[4]
Lehman had tens of billions of dollars in derivative positions with countless parties. Unless these trades were unwound in an orderly way, it could shock all corners of the financial market. "This will cause financial Armageddon," he reportedly said. According to a second WSJ story, this chaos caused the destruction of as much as $75 billion in value. A study by advisory firm Alvarez & Marsal, which was hired by Lehman's board just hours prior to its Sept. 14 bankruptcy filing, reveals that a less-hurried filing likely would have preserved tens of billions of dollars of value by enabling Lehman to sell some assets outside of bankruptcy protection, and would have given it time to try to unwind its derivatives portfolio.[5] A more planned and orderly filing would have allowed Lehman to sell some assets outside of bankruptcy court protection and would have given it time to unwind derivatives positions, according to the analysis by Alvarez & Marsal. The Journal said it was too early to say how much money Lehman creditors would recover; it said unsecured creditors have asserted they are owed $200 billion.[2]
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.[3]
The Journal reported it is too soon to know how much money the company's creditors will recover through bankruptcy proceedings. Unsecured creditors of the failed brokerage have said in court filings they are owed $200 billion.[1]
The Journal reported that creditors might only recover 10 cents on the dollar -or about $20 billion - given the current bond market.[1]
Losses through derivatives alone could cost creditors up to $50 billion, the Journal reported.[1]
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. [3] Bryan Marsal, the co-CEO of the advisory firm who now serves as Lehman's chief restructuring officer, told the WSJ: "While I have no position on whether or not the federal government should have provided further assistance to Lehman, once the decision was made not to provide further assistance, an orderly wind-down plan should have been pursued. It was an unconscionable waste of value."[5]
The disorderly bankruptcy filing also pushed down the value of other Lehman Brothers assets, hurting recovery efforts, the analysts told the paper.[1] 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.[3]
Alvarez & Marsal were hired by Lehman's board at 10.30pm on September 14, just hours before Lehman made the biggest bankruptcy filing in U.S. history.[3]
Lehman Brothers tried and failed to get a government rescue. When the bank filed for bankruptcy protection, it triggered a panic on Wall Street that led to bailouts of American International Group Inc. (NYSE:AIG. Other banks have collapsed or been sold in the wake of the credit crisis.[1] Lehman filed for bankruptcy protection in September after the U.S. government declined to bail it out and a frantic weekend of negotiations to save the investment bank failed.[2]
SOURCES
1. Report: Lehman filing cost creditors $75B - The Business Journal of the Greater Triad Area:
2. Lehman bankruptcy filing wiped out billions - WSJ | Markets | US Markets | Reuters
3. Lehman chiefs destroyed $75bn of bank's value in hours - Times Online
4. Lehman's Chaotic Bankruptcy Filing Destroyed Billions in Value - WSJ.com
5. Law Blog - WSJ.com : "Urgent. Code name: Equinox" -- The Story of Lehman's Bankruptcy
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