JPMorgan/Fed Reserve Give Lehman $138 Billion After Bankruptcy

Discussion in 'Trading' started by The Kin, Sep 16, 2008.

  1. JPMorgan Gave Lehman $138 Billion After Bankruptcy (Update2)

    By Tiffany Kary and Chris Scinta

    Sept. 16 (Bloomberg) -- Lehman Brothers Holdings Inc. was given $138 billion this week in Federal Reserve-backed JPMorgan Chase & Co. advances to settle Lehman trades and keep financial markets stable amid the biggest bankruptcy in history, according to a court filing.

    One advance of $87 billion was made on Sept. 15 after the pre-dawn bankruptcy filing, and another of $51 billion was made today, Lehman said in court documents. Both advances were made to settle securities transactions with customers of Lehman and its clearance parties, according to the filing.

    The advances were necessary ``to avoid a disruption of the financial markets,'' Lehman said in the filing.

    The first advance was repaid by the Federal Reserve Bank of New York on the night of Sept. 15, Lehman said. JP Morgan said in a statement that the $51 billion advance was also repaid and that the process will zero out the advances at the end of each day.

    Both advances were ``guaranteed by Lehman'' through collateral of the firm's holding company under an agreement made in August, according to the filing. The advances were made at the request of Lehman and the Federal Reserve, according to the filing.

    Lehman disclosed the advances in a motion seeking court permission to give JPMorgan's claims special status in its bankruptcy and to certify they are guaranteed by Lehman's collateral.

    Future Advances

    In a statement supporting Lehman's motion, JPMorgan said it ``will be unable to continue'' making future advances needed to settle trades if the court doesn't grant its claims special status.

    ``The granting of the relief requested is in the best interests of the estate and its stakeholders and the public markets,'' Lehman said, adding the advances would be ``essential to Lehman's customers.''

    Lehman also said JPMorgan may make future advances at its sole discretion, all of which would be guaranteed by Lehman under the August agreement to pledge collateral. JP Morgan said the August agreement, as well as a separate guarantee agreement made Sept. 9 also guaranteed its advances. Both update a June 2000 clearance agreement between the companies.

    JPMorgan lawyer Harold Novikoff didn't immediately return a call seeking comment. Federal Reserve Bank spokesman Andrew Williams didn't immediately return a call or e-mail seeking comment.

    $613 Billion Debt

    Investment banks have been aiding or buying peers since the U.S. Treasury Department and the Federal Reserve established that its rescue of Bear Stearns Cos. in March hadn't set a precedent and declined to save Lehman before it filed for bankruptcy with debt of more than $613 billion.

    JPMorgan is also reported to be working with American International Group Inc. along with Goldman, Sachs Group Inc. after AIG was told not to expect a loan from the central bank. Merrill Lynch agreed to be acquired by Bank of America Corp., leaving Goldman Sachs and Morgan Stanley as the two largest remaining investment banks.

    Barclays Plc, the U.K.'s third-biggest bank, walked away from a reported deal to buy all of Lehman just before its bankruptcy, and may buy the trading and investment banking business of Lehman, a person with knowledge of the matter said today.

    Lehman, based in New York, was the fourth-largest investment bank when it sought bankruptcy protection.

    JP Morgan rose $3.74, or 10 percent, to $40.74 in New York Stock Exchange composite trading at 4:15 p.m.

    The 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: Christopher Scinta in New York bankruptcy court at and; Tiffany Kary in New York bankruptcy court at

    Last Updated: September 16, 2008 17:07 EDT
  2. Nothing new here given the current environment.
    How else were trades going to clear?

    Meanwhile, Barclays buys out Lehman's Capital Markets group and Investment Banking unit. Roughly 9,000 employees.