Lehman Brothers Bankruptcy & Hedge Funds Prime Brokerage

Lehman Bankruptcy

Lehman Brothers Bankruptcy Mess

Lehman Brothers BankruptcyHere 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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