The PwC administrators of LBIE, Lehman’s principal UK operating company, have announced a fourth interim payment to ordinary unsecured creditors such as hedge funds, asset managers and other banks, meaning that these unsecured creditors will officially recoup 100p in the pound of their claims.
PwC administrators now estimate that £5bn of surplus cash could eventually be available to make further payments to creditors, following their success in recovery assets and cash, working together with the remaining Lehman team over the last five years.
The allocation of the surplus to be shared out remains uncertain because of matters which are the subject of disputes being argued in the UK Courts. Alongside the legal proceedings PwC is also developing a consensual solution proposal to put to creditors, in the near future.
LBIE was almost certainly not “balance sheet insolvent” when it collapsed in September 2008, but instead it had no liquidity and was “cash flow insolvent”. LBIE had more than $3bn of payments to make on the morning that it collapsed, but no liquidity due to the failure of its parent company the night before.
Tony Lomas, lead PwC administrator and partner said:
“The full repayment represents a remarkable feat, following the collapse of the Lehman group in September 2008. The fact that we have been able to pay ordinary unsecured creditors in full, including the return of their Trust Assets and Client Money, with a significant surplus remaining, highlights the importance of having a healthy level of capital within a firm’s balance sheet.
“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."
Nick Vermeulen PwC's Channel Islands Advisory leader noted: "This is an excellent result for investors who held funds with Lehmans when it collapsed. Within the Channel Islands this included a number of funds who used Lehmans for prime brokerage and custodian purposes. The collapse of Lehmans highlights the importance of doing the appropriate amount of due diligence when selecting and reviewing who your custodians are as well as the terms under which they hold your assets.”