Lehman's bankruptcy '10 times more complicated than Enron'

Accountants tell creditors it will take years to unravel

The administration of the London-based arm of Lehman Brothers will be "at least 10 times" more complicated than the European side of the Enron bankruptcy in 2001, according to the team of accountants at PricewaterhouseCoopers which has worked on both transactions.

The administrators, led by Tony Lomas, said yesterday at a press conference on the Lehman situation that there are more than $1 trillion of positions to unwind as part of the administration process, which is likely to take several years and go through court proceedings with some parties as they try to decide what is owed to whom, where the assets are, and secure those funds or securities for the creditors. Only about $5bn of asset realisations have been made so far after more than two months. "We have got a long way to go," said Mr Lomas.

Part of the complication is due to UK bankruptcy law, as opposed to its US equivalent. While the US arm of Lehman was able to continue to trade for several days while under bankruptcy protection, the European arm, based in London, had all its trades frozen, leaving a big web of in-limbo assets and payments.

The complexity of the trades and inter-relationships between different Lehman businesses also makes the unwinding more difficult. About $1bn is held up in the company's German business, for example.

The problem is especially acute for some creditors such as hedge funds, which are already being battered by the market and facing mass redemptions as well as trading losses.

The PWC partner Mike Jervis, who is also working on the situation, said that about 100 of Lehman's creditors have told PWC they face serious financial challenges due to Lehman's insolvency.

The comments came at a press conference given after the PWC team met creditors at a semi-public event at O2 in London, within sight of the Lehman building at nearby Canary Wharf. The creditors had arrived around 11am, although the meeting had to be delayed due to the high attendance.

About 1,000 creditors stood out in the huge space that is the O2, partly by their sheer number and partly due to their grey suits as they queued to enter the venue in an otherwise almost empty venue aside from a few families. Some looked resigned, some nervously made and took calls on their mobile phones before entering. PWC public relations executives hovered near the queue in an apparent attempt to stop press – who were banned from the meeting – from talking to possibly disgruntled creditors as they queued. Three hours later the creditors flooded out in a big horde, still looking subdued, with some joking with one another as they walked towards the Jubilee line station for the rides back to Canary Wharf, the City and Mayfair.

Unlike meetings in the US, where creditors have regularly vented their anger, the London affair was much more polite. While there is undoubtedly anger among those owed money by the defunct bank, it was "kept as inner frustration" in a very British way, according to Raj Jansari, a lawyer for Dresdner, who attended the meeting.

"It was very civil. Questions were asked, questions were answered," said Mr Jansari.

The most noteworthy point made in the meeting was "how extremely complicated and long this is going to be to unwind," he said.

Among points was a vote among creditors for a committee representing them, the results of which will be known next week. But another point is clear: there will be no refund of all the owed money as fees are levied, the positions are unwound and assets are revalued. "The creditors will lose money," said Mr Lomas.

PWC is yet to formally set its own fees as administrator, but those are running around $4m a week. The accountant also has to pay about 1,100 Lehman employees to stay on and use their unique knowledge of trades and the Lehman systems to help it unwind positions.

It will be paying them equivalent salaries to those they would have earned in 2007 – at the height of the financial boom that preceded the credit crunch – and will also pay some of them more as it seeks to retain them. the total cost will be about $8m a month, they said. "This will be an expensive process."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference
Rugby World Cup 2015: The tournament's forgotten XV

Forgotten XV of the rugby World Cup

Now the squads are out, Chris Hewett picks a side of stars who missed the cut
A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'