Lehman's collapse in June-September 2008

analysisLBHI reported that on June 2, 2008 Standard & Poor's lowered its counterparty ratings from A+/A-1 to A/A-1 with a negative outlook, and that it bought back 1.3 million shares the next day. Its June 9 press release, with preliminary estimates as of May 31, said the firm had grown its liquidity pool to about $45 billion, cut gross assets by about $130 billion, reduced net leverage to under 12.5x from 15.4x and raised $4 billion of convertible preferred stock and about $5.5 billion of long-term debt; the examiner later calculated that without Repo 105 second-quarter net leverage would have been 13.9 rather than the 12.1 reported. On September 10 LBHI issued its expected third-quarter results, signed by Ian T. Lowitt as chief financial officer. ^{1 2 3}

analysisThe examiner's report states that Lehman failed because it could not retain the confidence of its lenders and counterparties and did not have enough liquidity to meet its obligations, after business decisions had left it with heavy concentrations of illiquid assets such as residential and commercial real estate; confidence fell further when attempts to form strategic partnerships failed and Lehman reported losses of $2.8 billion in the second quarter and $3.9 billion in the third without a definitive survival plan. ⁴

analysisAt a special meeting on September 14, 2008 LBHI's board resolved to file under Chapter 11 and to engage Weil, Gotshal & Manges LLP as its attorneys; Lowitt certified the resolutions and signed the petition. The case was commenced on September 15 in the U.S. Bankruptcy Court for the Southern District of New York, and affiliated debtors followed; the cases are jointly administered as In re Lehman Brothers Holdings Inc. et al., Case No. 08-13555. The plan was confirmed on December 6, 2011 and became effective on March 6, 2012, and LBHI's own case was still active in 2026. ^{1 2 3}

analysisOn September 16, 2008 LBHI, Lehman Brothers Inc. and LB 745 LLC agreed to sell to Barclays Capital Inc., for $1.54 billion, Lehman's North American investment banking, fixed income and equities business and its private investment management business, together with the 745 Seventh Avenue headquarters and two data centers; the court approved the sale on September 20 and it closed on September 22. To fund its operations meanwhile LBHI entered into a $450 million debtor-in-possession credit agreement with Barclays Bank PLC as agent and lender on September 17. ¹

analysisOn September 19 the Securities Investor Protection Corporation commenced a case under the Securities Investor Protection Act for Lehman Brothers Inc.; the court appointed James W. Giddens as trustee. Under a letter agreement of September 22 among Barclays, The Depository Trust & Clearing Corporation and the trustee, the trustee instructed DTCC's clearing subsidiaries to close out LBI's pending transactions and $250 million of the purchase price was paid to DTCC as collateral. The SIPA case was closed in September 2022; according to the trustee, former securities customers were satisfied at 100% of net equity, secured, priority and administrative creditors were paid in full, and general unsecured creditors received at least 41.2841%. ^{2 1}