Lehman Borrowed $18 Billion From Undisclosed Fed Program During ’08 Crisis
By
Linda Sandler and Bob Ivry
-
Jul 7, 2011 12:04 AM GMT+0200
Lehman Brothers Holdings Inc. (LEHMQ)’s
brokerage borrowed as much as $18 billion in four separate loans
from a previously secret program of the U.S. Federal Reserve in
June 2008, three months before its parent filed the biggest
bankruptcy in U.S. history.
The program, which peaked at $80 billion in loans
outstanding, was known as the Fed’s single-tranche open-market
operations, or ST OMO. It made 28-day loans to units of 19 banks
between March 7, 2008, and Dec. 30, 2008. Bloomberg reported on
ST OMO in May, after the Fed released incomplete records on the
program. In response to a subsequent Freedom of Information Act
request for details, the central bank disclosed borrower names,
amounts borrowed and interest rates.
The Lehman brokerage, Lehman Brothers Inc., tapped the ST
OMO program for as much as $5 billion in short term funding in
March 2008, and lower amounts at other times during the month.
It took as much as $10 billion in June as the credit crisis
worsened, according to Fed data. The maximum outstanding for any
period was $18 billion.
The brokerage agreed on Sept. 18, 2008, to pay outstanding
loans that day, the Fed said. It went into liquidation on Sept.
19, four days after its parent.
Reports of Demise
Separately, the Lehman parent then run by Chief Executive
Officer Richard Fuld had a $45 billion loan from the Fed’s so-
called Primary Dealer Credit Facility around the time of its
bankruptcy. An August 2009 article in a Federal Reserve Bank of
New York publication said the Fed’s facility was expanded on
Sept. 14, 2008, in response to reports that Lehman was “only
days away” from bankruptcy, and might put other firms at risk.
The day before Lehman filed for bankruptcy, almost all of
its $41 billion cash pool was tied up at bank lenders including
JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp.,
according to a bankruptcy examiner’s report.
Expanding its facility to lend to Lehman, the Fed took
previously unacceptable collateral for its loans, including non-
investment grade securities and equities, according to the
article, “The Federal Reserve’s Primary Dealer Credit
Facility.”
Concerned about the safety of the loan, the Fed told
Barclays Plc (BARC) to take over the loan when it bought the defunct
investment bank’s North American business, according to court
testimony. Barclays closed its purchase of Lehman’s business a
week after Lehman’s Sept. 15, 2008 bankruptcy.
Barclays CapitalSeparately, the U.K. bank’s Barclays Capital Inc. unit had
peak loans from the ST OMO program of $21.4 billion, Fed data
shows.
Kimberly Macleod, a Lehman spokeswoman, didn’t immediately
respond to e-mails seeking comment. Michael O’Looney, a Barclays
spokesman, declined to comment.
Lehman failed because of too much leverage, which it tried
to
hide, and risky real-estate lending, according to bankruptcy
examiner Anton Valukas.
Goldman Sachs & Co., a unit of the most profitable bank in
Wall Street history, took $15 billion on Dec. 9, 2008, the
biggest single loan from a lending program whose details have
been secret until today.
The Lehman bankruptcy main case is In re Lehman Brothers
Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern
District of New York (Manhattan).
To contact the reporter on this story:
Bob Ivry in New York at bivry@bloomberg.net
Linda Sandler in New York at
lsandler@bloomberg.net
To contact the editor responsible for this story:
John Pickering at
jpickering@bloomberg.net
www.bloomberg.com/news/2011-07-06/...ram-during-08-crisis.html
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