Lehman Brothers webcast - transcript

Tony Lomas, partner, PricewaterhouseCoopers LLP

Good afternoon. We wanted to take this opportunity to communicate some of the progress that we have made here at Lehman Brothers in the UK because there is a lot of uncertainty out there, a lot of counterparties interacting with the banks wanting to know what is going on, concern amongst the staff and so on and so forth.

A lot of work has been done since Monday morning to progress some of these issues in an effort to take control of the companies affairs and focus on some recovery plans for the assets and as we begin to wind down various businesses for which we are responsible.  I would like to emphasise that we are not responsible in an administration capacity for all of the companies here there are still some companies which are unaffected by this as so far as its still solvent to trading.

As regards to the others in principally the trading companies there are a lot of issues that we have we have had to be dealing with.

One very important point when we arrived was that there were no funds here so staff were concerned they were not going to be paid their September salaries and we were concerned we were not going to be able to make various other payments necessary to continue the companies affairs.  We have successfully concluded the negotiation on raising funds we have arranged a loan from CarVal a Global Financial Institution which has enabled us now to give the undertaking to staff that before the end of the month we will be paying all staff here, there are 4,500 of them, so long as, of course, they are turning up to work in order to help in our efforts to take this forward. 

It is important also, that that the trading entities out there who are doing business with Lehman Brothers and who want to resolve situations understand how we operate as an administrator and what is important to us so that they can take this into account when they develop their strategies to deal with their exposures.  What I will say on that is that a key to us is the control and protection of the assets that belong to the company here and to turn those assets into cash we need to make sure that we do that and those assets don't transfer in some uncontrolled third party and further more with regards to the liabilities that Lehman Brothers have to various institutions we need to make absolute certain sure that no preference is created that no institution out there receives payment who shouldn't receive it in priority to anybody else. 

So those principals are overriding all of our actions here we have communicated to the traders in order to develop a new way of working forward.  We wanted to take the opportunity so to work through some of the areas the business and communicate various specific actions that we have been taking and these have come under the control of Steven Pearson, my partner who is dealing with the principal operation in the group.

Steven Pearson, partner, PricewaterhouseCoopers LLP

Thanks Tony what I would like to do is spend a little time talking through some of the specific steps and actions that we are taking in order to assert control all over the companies books and assets.  Firstly, we are in ongoing discussions with a number of global financial institutions to assist us with a number of things. 

Firstly, in assisting us with transacting certain market positions the company has effectively been suspended from trading by the various different exchanges and by working through third party brokers we are hopeful that we would be able to transact market position relatively soon. 

Secondly, they are assisting us in finding a resolution to the failed trades, the various different market positions that the company took the tailed end of last week which was not settled. 

Thirdly, we are working with them together with the company's management to identify strategy for optimum liquidating the various different interests that the company has got across its various books.  We have worked extensively with the two principals exchanges in Europe- Eurex and London Clearing House and we have an arrangement with each of those parties now whereby certain client positions are effectively being transferred.  That should allow an orderly transition of certain client funds to third parties.  We have arranged for a standstill on certain margin calls with the exchanges and we have got an exercise which we will jointly be doing with Lehman Brothers' staff and staff of the relevant Clearing Houses to ensure that we minimise the impact on the effective parties.  This ultimately should meet the first objective which we have identified which is to ensure we have realised cash for the benefit of the company creditors and counterparties. 

Secondary, where we have spent extensive time is in the prime brokerage area in dealing with specific assets that have pledge or owned by certain third party clients.  Now the entire market is aware their very substantial positions is many hundreds of billions dollars of funds are being invested through Lehman Brothers and that there are a number of client accounts positions in respect of that.  Now I should emphasise this is exceptionally complex whilst on the face of it the mechanisms for putting in place client monies into protective positions is relatively simple.  The mechanisms by which those are affected are extremely complex and whether they do or don't constitute clients funds is an area where which we are taking extensively legal advice from our lawyers Linklaters.  In practice that means we won't be in a position to transfer some certain client accounts and certain client funds in the relevant short-term and indeed I cannot at this point give any clarity as to when those positions will be transferred. 

Clearly we are here to look after the interest to Lehman Brothers in the first interest and market in the second instance and that exercise should ensure we do that.  The companies also provided significant leverage to clients in order to take market positions we expect to liquidate a number of those positions over the coming days using the third party brokers that I referred to and as part of that we do expect to realise assets for the estate whether or not there will be any residual interest to the clients on behalf of those leverage positions were taken we do not know at this particular time and at this point in time we don't have a definitive position as to whether that excess would indeed be clients funds as I referred to a moment ago.  Also I would like to mention the company's derivative book.  The company has very substantial positions in various derivative markets. 

As a consequence of the companies administration that is a termination event under many of the companies derivative contracts and as a consequence it is likely that the counterparties may have terminated positions and indeed we have received many thousands termination notices which is what is to be expected in these circumstances. 

In practice that means it is quite difficult for the company to understand its position on a counterparty by counterparty basis because they have not been through the exercise of valuing the consequences of those termination notices and indeed in our experiences it may take some months or years to fully assess the extent of the specific crystallised losses or in the money position that are established by virtually those terminations.  I should emphasise that we are working with our advisors Linklaters and third party advisors in order to formulate strategy for each of the trading books that the company has. 

We have been working with the heads of each of the trading books to cover each of their principal activities that the companies engaged in and we have been undertaking a stratification process by region and by project book in order to determine an appropriate strategy to determine each area.  We expect to be in a position to be transacting certain parts of the book over the coming day or so, I cannot give any clarity of the timing of that because it is depending upon both the collaboration of certain exchanges which we are working through and the brokerage arrangement that we are currently in the process putting in place. 

That should however, enable the company to start freeing up some of its trades and we are ensuring we are consulting with the regulatory authorities and the different market participants as part of this process.

In particular the Bank of England's is being very help in establishing new banking facilities for us because the company didn't have any bank accounts of its own that were in operation anyway, relying on the parent company estates for all transactions so that has enable us to deposit the monies we borrowed and now begin to make payments including the salary payments. 

The FSA has also been very helpful also in helping us interact with the various counterparties to try and work our way through some of these problems which frankly have some way to go still because of the complexity here as I'm sure you have just understood.  Now we are also, in order to handle the all the enquires that we are getting, we are also setting up an enquiry line and telephone number which will be announced in due course and we have set up a web site so that email enquiries can be received and dealt with. 

We have had that many that the systems have become jammed so we are not confident that we can turn these around as quickly as our counterparties would like so this is a step to try and resolve that. 

So the email address to use for those that want to do so is enquiries.lehmanbrothers@uk.pwc.com and the telephone number will be announced soon.