8 replies to this topic

[TheWolf]

Oct. 4 (Bloomberg) -- Lehman Brothers Holdings Inc.''s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman''s collapse, creditors said.

JPMorgan had more than $17 billion of Lehman''s cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ''''froze'''' Lehman''s account, the creditors claimed.

JPMorgan, the biggest U.S. bank by deposits, financed Lehman''s brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ''''suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'''' according to the filing.

The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said.

Harold Novikoff, a lawyer for JPMorgan at Wachtell Lipton Rosen & Katz, declined to comment, saying he didn''t see the filing until midnight. He previously said in court hearings that the bank continued to finance Lehman''s brokerage after its parent went into Chapter 11 bankruptcy proceedings.

$23 Billion Claim

Brian Marchiony, a spokesman for New York-based JPMorgan, declined to comment. Creditors'' lawyers at Quinn Emanuel Urquhart Oliver & Hedges didn''t return calls seeking comment.

Once the biggest U.S. underwriter of mortgage-backed securities, Lehman was stuck with the assets as their values fell and it searched unsuccessfully for a merger partner.

Lehman had surplus cash of $15 billion when it announced preliminary third-quarter results on Sept. 10, even after taking an estimated net loss of $3.9 billion and marking down assets by $7.8 billion, the creditors said in the filing.

The stock of the investment bank was increasingly targeted by short sellers after Moody''s Corp. said that same day it might lower its ratings for Lehman unless it reached a ''''strategic'''' merger with a stronger partner, according to the filing.

Lehman seemed to have enough liquidity to meet its obligations on Sept. 12, the Friday before its bankruptcy filing, creditors said, referring to the cash and collateral at JPMorgan. In addition, the bank held ''''highly liquid'''' securities bought with secured financing amounting to $188 billion from banks and other lenders, they said.

Funds Frozen

The ''''freezing'''' of Lehman''s account meant it no longer had funds to support its operations, they said.

Explaining Lehman''s collapse to the judge after the bankruptcy filing, company executives and lawyers said the $188 billion pool of loans mostly financed the bank''s least liquid assets, subprime mortgages and structured financial instruments.

''''Secured financing fell out of reach'''' because of the devaluation of assets securing the loans, forcing Lehman to deplete its cash to continue trading, said lawyer Shai Waisman of Weil Gotshal & Manges in a Sept. 16 court hearing. ''''This began the stranglehold on Lehman,'''' Waisman said.

JPMorgan is Lehman''s largest secured creditor, with an estimated claim of $23 billion, according to a Sept. 25 court filing. Unsecured creditors have claims on Lehman that might be worth 15 cents on the dollar or less, according to analysts including Peter Plaut of Imperial Capital LLC.

$87 Billion Advance

After Lehman''s filing, JPMorgan advanced the company $87 billion on Sept.15 and $51 billion the next day to pay short- term lenders and settle trades, according to court documents.

''''There was a great amount of concern, and that concern was expressed as well to us by the Federal Reserve Bank of New York'''' that ''''we would be creating market havoc had we not made an advance at that time,'''' JPMorgan lawyer Novikoff said in court Sept. 16 as he asked for ''''comfort'''' that the bank''s post- bankruptcy loans would continue to be secured.

The bank''s collateral was valued in court at $17 billion, including almost $7 billion in cash and a claim on the assets of Lehman''s brokerage, by Weil Gotshal.

Lehman, once the fourth-largest U.S. investment bank, filed for bankruptcy with debt of $613 billion as of May 31.

The creditor panel, reconfigured yesterday, includes Bank of New York Mellon Corp. and Wilmington Trust Co. as trustees for bondholders owed about $127.6 billion, according to court papers. Vanguard Group Inc., Shinsei Bank Ltd., Mizuho Corporate Bank Ltd. and MetLife Inc. also are members of the committee, which acts for thousands of unsecured stakeholders in the bankrupt securities firm.

Lehman Brothers Commodity Services Inc., sued by Bank of America Corp. last month for failing to return collateral provided for derivative transactions, filed yesterday for bankruptcy in New York, along with affiliated units. Bank of America was seeking the return of $500 million from three of the units.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

[Spock]

...interconnected that my little Rasputin brain is spinning around in my skull trying to sort it out.

First, JPM holds up Lehman''s funds because they are obviously worried about Lehman going belly-up and stiffing them--that much I can understand. I think.

But then JPM turns right back around and lends Lehman $138 billion (with one-half of that amount being reimbursed by the Fed to JPM, if I understand correctly--another murky transaction)?  Yeah okay, I understand that AFTER Lehman filed Ch. 11, JPM''s loan would then come under the supervision of the bankruptcy trustee, but again I have to ask the following questions:

Why didn''t Lehman just borrow directly from the Fed BEFORE the bankruptcy filing? They had access to the PDCF.

Why did the Fed lend JPM one-half the $138 billion that JPM lent Lehman?

Weird.


Another issue I don''t understand is Lehman asserting that they had "highly liquid" assets of $188 billion and then they turn right around and state that the $188 billion loans financed the bank''s "least liquid assets, subprime mortgages and structured financial instruments".

So, which is it guys?

Was the pool of assets "highly liquid" or were they "least liquid"?

(Ras): I must admit that I don''t understand what passes for "high finance", but I do believe I understand this much:

Lehman was sitting on hundreds of billions of dead "assets" and that is why they are bankrupt.

However, what I don''t understand is why Lehman was allowed to fail by the Fed when the PDCF lending was ostensibly available to them.

[TheWolf]

Ras, the only thing I can conjure up is that the chief vultures are already looking ahead past the inevitability of a total failure and are assuring their status at the “final table” when all the collective systemic chips are raked in and disbursed to those left standing. So this is just a move towards that end game, bullying out the undercapitalized players with “all-in” calls.

[WANBLI2]

CON-ARTISTS
Got em by the cahones

FAmily true story: my wifes dad a depression man borrowed on a land purchase in the 1940''s and negotiated "by himself" with never his wife present, the loan for months  with a local ''hometown banker''.

At the loan signing wifes dad came to the ''hometown banker''s'' office to do the paper work.

The ''hometown banker'' said there is a place for your wife to sign.

Dad to banker, "I see, if I can''t pay the loan you want my wife, go to hell."

[WANBLI2]

The dad picked up the papers clinched them in his fist and said to the ''banker'', "Everybody in this town knows you and I have been negotiating this loan just between the 2 of us, and if you don''t change your mind right now, I am walking out of this bank and posting them as you presented them to me all over town."

The "banker" changed the papers or a single signature.

[Spock]

...given that the Fed/FDIC/Treasury is beefing up JPM and BofA with all the assets and derivatives of the failed players.

Scary, scary times if this is actually playing out as it seems to be.
.

[TheWolf]

For a moment there, I thought you were going to add "and he put a six shooter on the solid oak credenza and spun it, with the barrel end laying pointed at the banker". Who knows, maybe we revert to that type of self-regulating closely knit community, though it''s doubtful.

[gjohnsit]

If LEH was healthy then they could have borrowed from someone else.

[sss355]

and refused to release it.