Sloppy Lehman Bankruptcy Killed Billions in Value

Speedy process leaves creditors hanging

By Matt Cantor, Newser Staff

Posted Dec 29, 2008 1:40 PM CST

(Newser) – Had Lehman Brothers been more careful in its bankruptcy filing, it could have held on to as much as $75 billion that was destroyed in the process, the firm’s head restructuring agents say. A better-planned filing would have allowed the sale of some assets outside of court proceedings and would have afforded Lehman more time in unwinding its derivatives portfolio, the Wall Street Journal reports.

Lehman’s filing sparked a domino default effect at subsidiaries that held trading contracts, killing some 900,000 derivatives contracts—including some on which Lehman was owed money. Meanwhile, the unexpected bankruptcy squashed the values of Lehman’s assets; they sold for far less than they were worth before the filing. Now, creditors are likely to recover 10 cents on the dollar for the $200 billion they say is due.

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In this Oct. 6, 2008 file photo, Lehman Brothers Holdings Inc. Chief Executive Richard S. Fuld Jr., wearing tie, is heckled by protesters as he leaves Capitol Hill in Washington after testify before the... (AP Photo/Susan Walsh/FILE)

Lehman Brothers Holdings Inc. Chief Executive Richard S. Fuld Jr., testifies before the House Oversight and Government Reform Committee on Capitol Hill in Washington, Monday, Oct. 6, 2008, on the collapse... (AP Photo/Susan Walsh)

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Once the (government) decision was made not to provide further assistance, an orderly wind-down plan should have been pursued. It was an unconscionable waste of value. - Bryan Marsal, restructuring adviser to Lehman

Had fundamental rules of crisis management been followed, much of the value that was lost by the unsecured creditors would have been prevented. This loss in value could have been mitigated. - Bryan Marsal

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Sloppy Lehman Bankruptcy Killed Billions in Value