Chaotic end to Lehmans 'cost $75bn in value'

Bankruptcy of bank could have been better managed

The sudden, chaotic bankruptcy of Lehman Brothers in September wiped out $75bn of value that could and should have been saved, if the bankruptcy filing had been more properly planned, according to the man administering the remains of what used to be the fourth-largest US investment bank.

Bryan Marsal, of the financial advisory firm Alvarez & Marsal, says that creditors who are owed a total of $200bn (£138bn) might have got close to half their money back if "fundamental rules of crisis management" had been applied.

Instead, according to the trading value of Lehman Brothers bonds still outstanding, creditors expect to get barely 10 cents on the dollar.

Alvarez & Marshal, which has 150 employees poring over the books at Lehman Brothers' offices in the US, was appointed at 10.30pm on Sunday 14 September, at the end of a weekend of crisis talks aimed at saving the company, and just hours before it made the biggest bankruptcy filing in US history.

The heads of the US Treasury, the Federal Reserve and all of Wall Street's major firms had failed to come up with a plan to save the company, and its bankruptcy sparked a financial panic that, by the following Thursday, threatened a full-on run on banks in the US.

Economists and market participants continue to debate whether the fall-out was so catastrophic that the US government should have funded a rescue of Lehman, as it did for Bear Stearns before it and for the insurer AIG and the rest of the banks later in the month.

Many in the market the previous week did not believe the Treasury's protestations that no government money would be used to prop up Lehman, even as it was becoming clear the company might go into a death spiral.

"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," Mr Marsal said in an interview with the Wall Street Journal. "This filing, which was pretty much dictated to the board of directors at Lehman that weekend, occurred with no planning. It was an unconscionable waste of value."

Alvarez & Marsal has prepared a report for bankruptcy court estimating the losses caused by the failure to run an orderly wind-down of the company, saying that $50bn was lost because of the sudden shut-down of its derivatives trading operations. The bankruptcy filing nullified some 900,000 derivatives contracts, including many where Lehman Brothers was owed money.

In addition, divisions which were sold off in the days after the filing, including the investment banking operations picked up by Barclays, fetched much lower prices because of the fire-sale nature of the deals, squandering tens of billions of dollars more that could have gone to creditors.

Start your day with The Independent, sign up for daily news emails
News
Bobbi Kristina Brown with her mother Whitney Houston in 2011
people
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
The guide, since withdrawn, used illustrations and text to help people understand the court process (Getty)
Ministry of Justice gets law 'terribly wrong' in its guide to courts
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
scienceFeed someone a big omelette, and they may give twice as much, thanks to a compound in the eggs
PROMOTED VIDEO
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
News
i100
ebooks
ebooksA special investigation by Andy McSmith
News
peopleHere's what Stephen Fry would say
Arts and Entertainment
tv
News
Richard Dawkins is known for his outspoken views
people
Life and Style
L’Auberge du pont de Collonges (AFP)
food + drinkFury at British best restaurants survey sees French magazine produce a rival list
Arts and Entertainment
Bourne's New Adventures dance company worked with 27 young Londoners to devise a curtain-raiser staged before New Adventures' performance of Edward Scissorhands
theatreStar choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links