After four years, a payout for unsecured creditors
The liquidator to the London-based Lehman Brothers International will reveal today that it is ready to pay the first dividend to unsecured creditors, four long years after the investment bank's demise left the world on the brink of financial armageddon.
But PricewaterhouseCoopers, which is handling the US business's London arm, warned that despite much-touted plans to force banks to draw up "living wills" designed to secure an orderly wind-down, "progress to date is varied and in many respects these plans only scratch the surface of the problems that would arise if another Lehman-style event were ever to unfold".
Privately regulators say they continue to lose sleep over the possibility of another "mega-bank" of Lehman's size and complexity – or even bigger – collapsing, and are furious at the banking industry's multimillion-pound lobbying campaign designed to stymie reform.
The lead administrator for PwC, Tony Lomas, described the liquidation of Lehman as "the biggest and most complex administration I've ever worked on".
He said of the dividend: "We are on the verge of a very significant milestone as we prepare to pay our first dividend to unsecured creditors later this year."
But the complexity of the bank's sprawling operations has also made it one of the most costly liquidations, with the accountancy firm racking up fees of more than £500m to date.
Mr Lomas said he was "proud of the progress we have made" which has seen £14bn returned to Lehman clients. But despite this the operation remains horribly complicated and mired in legal difficulties and disputes.
More than $9bn in cash and securities is trapped within affiliates of Lehman Brothers International Europe, which was headquartered at Canary Wharf.
Most of this remains the property of the investment bank's unfortunate clients.
Mr Lomas said: "Try as we might, using all the tools at our disposal and finding innovative solutions to the problems that we constantly confront, the extremely complex, legal and operational structure of the investment banks and their products has made the task of winding down LBIE particularly challenging."
Kevin Burrowes, the UK financial services leader at PwC, yesterday urged the banking industry to launch "a concerted response to the general crisis of confidence in banks".
Lehman Brothers: Where it all went wrong
Road to bankruptcy
When Lehman Brothers collapsed there were fears it would take down the world's financial system with it. In June 2008, Lehman announced a $2.8bn (£1.7bn) loss for the second quarter of that year. The bank instituted a management shake-up and tried to find a buyer. When this failed confidence in the bank collapsed. Bankruptcy was declared on 15 September. Panic ensured and there were reports of hedge fund managers buying farmsteads and commodities with which to barter.
Barclays pulls off a coup
Having tried and failed to buy Lehman Brothers in its entirety after the British Government vetoed the plan, Barclays' Bob Diamond pulled off a coup by securing the next best thing: he got the core of the US business for a knockdown price of £1bn. Without any of the nasty stuff. The initial deal was secured a day after the collapse, although the terms were modified the next week. Creditors promptly sued for billions, saying Barclays got far too much. So far they've enjoyed little success although several motions are being appealed.
Nomura swoops in
Lehmans' equities and investment banking operations in Europe and the Middle East were snapped up by Nomura, Japan's top investment bank, from under Barclays' nose and it only paid $2. It also took over the Asian businesses paying £123m. Staff leaving the London HQ with personal belongings in cardboard boxes was one of the iconic images of the financial crisis. Some of those saved by Nomura now need their own cardboard boxes as part of a £630m cost-cutting drive.
Savers have never regained their trust in banks, survey finds
British savers are taking greater care to spread their money between many different banks and building societies to guard against losing out in a Northern Rock-style run. A survey by the Financial Services Compensation Scheme found that 43 per cent of savers have changed the way they bank since the run on Northern Rock in 2007, with 17 per cent saying they now bank with more than one institution.
"The run on Northern Rock was a seminal moment and changed how people feel about their money. The images of people queuing to withdraw their cash remain imprinted in the minds of many and show just how important it is for consumers to have complete confidence their money is safe," Marc Neale, chief executive of the FSCS said.
Some, it seems, have never truly regained faith in the banks – despite the maximum amount that is covered by the FSCS being upped from £31,700 in 2007 to £85,000 today – with 15 per cent saying they would avoid banks if they could, and 2 per cent now holding their money outside a high street financial institution.
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