HSBC blamed for hastening Lehman Brothers’ fall: report

Britain’s biggest bank HSBC has been accused of quickening the fall of Lehman Brothers by demanding billions of pounds in collateral days before its collapse, a media report said.

Lehman Brothers went bankrupt in September 2008, following which the global financial crisis worsened.

“The bank (HSBC) handled clearing and settlement for all Lehman’s trades in sterling and much of its Asian business. It started to withdraw credit after the implosion of American investment bank Bear Stearns in March 2008 under a scheme called Project Opaque,” The Sunday Times said.

“HSBC were not going to allow us to do business. They put a gun to our head,” the U.K. paper quoted a former senior executive at Lehman Carlo Pellerani telling an investigation into the collapse of the investment banker as saying.

“HSBC, Britain’s biggest bank, has been accused of helping precipitate the fall of Lehman Brothers by demanding billions of pounds in collateral days before its collapse,” The Sunday Times said.

A 2,200-page official report published last week delved deep into the collapse of once-famed Wall Street major and highlighted the roles played by senior executives of the bank and auditing firm Ernst & Young, among many others.

The report also noted that Citigroup and JPMorgan demanded collaterals from Lehman for loans, which added to the liquidity problems at the bankrupt company.

According to the report, to continue provision of clearing services and intra-day credit that Lehman relied upon for day-to-day operations, the banks demanded collaterals. “In response, Lehman pledged, or attempted to pledge, Lehman-structured instruments, such as certain collateralised loan obligations, to Citigroup and JPMorgan two of its principal settlement banks,” it added.

Valukas, who is the chairman of legal firm Jenner & Block, noted that a series of business decisions had left Lehman with “heavy concentrations of illiquid assets” including residential and commercial real estate.

Lehman’s financial plight was exacerbated by executives, whose conduct ranged from serious but non-culpable errors of business judgment to actionable balance sheet manipulation.

As per the report, Lehman, which incurred a loss of $2.8 billion in the second quarter of 2008, had also said that it had a strong and robust liquidity pool.

“Lehman did not disclose, however, that it had been using an accounting manage its balance sheet by temporarily removing approximately 450 billion of assets from the balance sheet at the end of the first and second quarters of 2008,” Valukas noted

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Printable version | Sep 29, 2022 7:48:11 pm |