Lehman Brothers administrators left with £5bn surplus after creditors paid

Dismantling Lehman

Banks, hedge funds and fund managers will recoup all the cash they were owed by the UK arm of Lehman Brothers when it collapsed five years ago, and the administrators said on Wednesday they expect to be left with a £5bn surplus.

These unsecured creditors will have received a total of £10bn by the time the final payment is made next month, leaving the administrators at PriceWaterhouseCoopers the task of settlements with claims from other parts of the Lehman estate.

Tony Lomas, the PwC partner leading the administration which began on September 15 2008, said it was "remarkable feat" that the unsecured creditors had been paid back in full. He said the administration of what is technically Lehman Brothers International (Europe) provided lessons for regulators in seeking solutions to tackling other banks which might be on the brink of collapse.

His view is that LBIE was not "balance sheet insolvent", that is crippled by debts or creditors, but "cash flow insolvent" because its parent company in the US had collapsed. The UK arm had $3bn (£1.8bn) of payments to make on the morning it collapsed but had no cash.

Regulators have been focusing on tackling the issue of balance sheet insolvency, he said, with bonds which can be called upon, or bailed in, during times of difficulty.

"LBIE offers an interesting example to regulators and central banks currently developing 'bail in' plans to address the 'too big to fail' problem. Whilst 'bail in' is intended to address pending balance sheet insolvency, PwC's experience dealing with LBIE clearly demonstrates the very sizeable potential need to support a firm's liquidity at the same time, where it has high volume, high value and complex trades pending at the point of its imminent failure," Lomas said.

There is another £5bn of surplus cash to be made available although legal battles could delay these payouts. PwC is on course to receive £1bn in fees from the administration which Lomas has previously warned could take at least another 10 years. More than 500 people are employed on the administration.

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Wednesday 5th March 2014 07.55 Europe/London

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