This story is about the longest, biggest and probably most lucrative bankruptcy
in history. Lehman Brothers
staff arrived at work in London this morning to be told
the bank had been put into administration. It's got $600 billion in assets. Nothing like that had ever gone
bust before. Nothing really like
that has ever gone by since. It's not good. It sucks. Everyone remembers
the boxes being carried out by bankers, but the story didn't end there. For some people,
it's continued to be their life's work. I kind of was embarrassed to say
I worked at Lehman, whereas now I feel proud. This company, which is sort of, you know,
the biggest corporate failure in history. It turns out that there actually
is quite a lot of money in there. If you bought early, it's pretty hard
not to have made money on Lehman. You could be looking at
maybe 40 times back your money. Having seen the value of these things
go from as close to zero as anyone can be bothered
to make a trade happen at, all the way up to the highest trade
at 50% has been, of course, life changing. It's probably one of the biggest distressed
debt trades in hedge fund history. Lehman Brothers staff
arrived at work in London this morning to be told the bank had been put into
administration. It is disastrous but I think people are experienced enough and professional enough
to take it on the chin. When the news came on that Monday,
it was shock. There were just people
standing around in huddles in groups. Because we didn't know
what was going to happen. You know, text messages
were flying around to say the office was going to be locked.
That we wouldn't be able to get in. That our personal belongings
would all be carted off into some skip and dumped to the side of the road. Brought down by bad morgage investments, Lehman, which has 25,000 employees, will be liquidated. When I started working on Lehman,
one of the things I found out is that there were people working at
Lehman's in the UK and in the US as well, who had been working at Lehman's before
it went bust and they were still there. To most people, Lehman's has been long dead,
but to these people, Lehman's is still very much
a core part of their lives. So I started at Lehman April 1989,
so that's nearly 33 years ago. I think at the time
we went into insolvency, there was probably
about 6000 people in Europe. 5000 plus of those were in the London headquarters. Lehman Brothers goes bust very quickly,
which is kind of unusual. Lehman was about as close
to like a freefall bankruptcy as experts would call it, than any other bankruptcy. With panic spreading, Wall Street looked for
who would be the next to fall. Number one on the list
was Lehman Brothers, with massive exposure to the crumbling mortgage market
after years of buying in big. You know, the broad story about Lehman
is that basically they got stuck with a load of subprime, subprime mortgage bonds, which are mortgage bonds
of a lower credit quality, i.e. the borrower is less likely to pay back than other mortgage bonds
and they can't shift them. And that makes people wonder
about the quality of their book of loans. Their assets. And because of that, the assets that Lehman
has are being sold for basically nothing, Its stock price tanking. Lehman, with the government's
help, tried to find a buyer, but no luck. After a summer of rescues,
the political appetite for another huge Wall Street bailout was gone
and the 150 year old firm was finished. Lehman's London office had to be closed
immediately. I had an email from one of my contacts, PricewaterhouseCoopers, PWC, and they said,
you know, don't freak out, but there's some guys from the insolvency team
going to be coming to the office and then once I got that email, I thought,
'Oh my God, this is serious'. In the UK PWC come in
as the administrator. Administrators basically a term for the accountants
in this case they are officers of the court who are there to look after
and wind down the business. In this morning's top corporate news,
creditors of Lehman Brothers filed more than 16,000 claims before yesterday's
deadline. Wilmington Trust, which is a trustee
for various Lehman senior notes, says it may be owed as much as 73 billion. So in the US, the UK you have these assets and you think they're going
to be worth something at some point but while everyone's panicking,
they're not going to be worth anything. Who wants to own a Lehman bond? You know, you've just watched the news where
everyone's coming out with their boxes. It doesn't look like a great credit. So nobody really wants to buy it. And then you've got the other problem
that nobody has any money anyway. There's an absence of liquidity
in the financial system. The oldest money market
fund in the nation wrote off roughly three quarters
of a billion dollars in bad debt issued by the now bankrupt
Lehman Brothers. So my name is Daryl Rattigan,
I starter at Lehman in 2004 as a secondee, and I have continued to work
for the administration to manage the commercial property
related exposures that Lehman has. Lehman Brothers now go to court where a judge will take control
of the bank until its assets are sold. The Lehman insolvency has various
different strands. In the UK
we have an administration process and the largest company in the UK
was a company called Lehman Brothers International Europe often referred to as LBIE Everyone likes to tidy up
after themselves. You know, when the Lehman thing fell off the cliff, there was a lot of mess
on the floor to clean up. So, if a company is insolvent, the chances are that you're
not going to get all your money back. So you'll be getting something
less than 100p in the pound. To the extent there has been something
to sell you might get 20, 30, 40,
50p in the pound. The LBIE creditors have actually got
something around about 140p in the pound. So when a company goes bust, it has to pay its creditors
and it has to do it in a particular order. And that queue we call a waterfall. Basically what happens is
the cash comes out of the company and then it has to go to someone first
and then they'll go to a second person and then it'll go to a third person. So imagine a waterfall coming down
and you've got these little buckets and the top bucket
might be called Super Senior Secured, and then there might be a bucket
in the middle called Unsecured, and then there'll be another bucket
called Subordinated and then there'll be another bucket called Equity.
And people get paid in that order. So once the first bucket is full up, then the next bucket gets filled up,
then the next bucket gets filled up and those buckets
have been filled up a lot. If you're looking at the European UK listed, UK issue debt, you will get paid 100% of the face value. Bare in mind these are being sold
for nothing close to that value when the company was going bust and
then you get a load of interest on top. And in the UK.
some of the people who held on and waited for that bucket
to fill up, have had to wait a long time but they've got their buckets overflowing. Hi, I'm Robert Southey. I'm the founder of Southey Capital. And we are a firm that are focused on trading
bankruptcy claims and distressed debt. So the LBIE debts, they finally settled at about 144% of par. So the holders of that
who held all the way through received a substantial recovery
plus statutory interest. And they the whole estate probably paid out around 17 billion
sterling. The vast majority of the recovery is coming from assets which were marked at a very low value in 2008 and subsequently recovered huge amounts. And had enough time
been given to the company, perhaps, it would have traded out
of its problems and survived. Much more money has been realized from Lehman's estate
than would have been thought possible. It's pretty unusual that unsecured creditors would get paid this much money. Pretty unusual
that they get paid back in full. Very unusual that they get interest. And in between that,
you actually have the taxman. So a billion pounds of tax was paid to HMRC, which, you know,
probably isn't in the press very much but, you know, that's a big
number for the Exchequer to receive. So now I kind of feel proud and
when people say, 'Oh, who'd you work for?' and I say, 'Lehman'. They, 'ah, Lehman
is that still going? We thought that went ages ago'. And you say, 'Well, actually,
no, that was six and a half thousand people in Europe,
and now there's four or five of us left' and they just cannot believe it. I'm not sure I want to be the last person
to turn lights off, but I'm kind of quite keen to be around to close those last
remaining entities. That's it. Blank piece of paper
again and I can move on.
