General Update – Conversion of LBIE Cash to GBP – 14 September 2012

In the fourth progress report to creditors dated 14 October 2010, the Joint Administrators explained that their exercise to convert LBIE’s “house” cash to GBP had been suspended. This was following the UK Court of Appeal judgment in relation to client money, which caused considerable uncertainty as to what extent house cash held could be susceptible to re-characterisation as client money. This judgment was appealed to the UK Supreme Court and on 29 February 2012, the Supreme Court handed down its judgment.

Since then, the Joint Administrators have published their view of client money entitlements in light of the Supreme Court judgment, please refer to the Client Money Update - Client Money Entitlement Determination - 24/5/2012 for more information, and estimated to what extent cash held in house accounts could ultimately be considered to be client money. In addition, the Joint Administrators have discussed this issue at length with the LBIE creditors’ committee, external creditors, and affiliates.

At the end of July 2012, the Joint Administrators concluded that, aside from any GBP, the maximum likely reserve required from the house estate for client money was EUR 1.2bn and USD 0.5bn, based on an analysis of certain recoveries from third parties post-insolvency. In addition, the Joint Administrators estimated that a further EUR 0.2bn and USD 1.2bn might be required to be paid from house cash to Lehman affiliates, principally in respect of realisations and income from securities held in a LBIE house account but which are potentially owned by affiliates.

Following this analysis, all house cash held by LBIE has been converted into GBP, save for EUR 1.4bn and USD 1.7bn to cover the above reserves pending resolution of the issues associated with them. Going forward, subject to any compelling operational reasons, as a general policy all house cash will be converted into GBP on or around the date of receipt and any further cash derived from securities potentially held for affiliates will be held in its original currency.

In the eighth report to creditors to be published on or around 14 October 2012, the Joint Administrators will provide more detail as to the receipts and payments in the six month period ending 14 September 2012, and a breakdown of cash and investments held by currency.

Should you have any queries regarding this update please email generalqueries@lbia-eu.com.