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."