(Thumbnail Image: The Telegraph)
A potentially damning new report suggests financial services giant Lehman Brothers "cooked the books" in an effort to hide nearly $50 billion dollars in leveraged assets.
A court-appointed examiner's report suggests Lehman Brothers contributed to its own collapse in 2008--one of the biggest corporate bankruptcies in history.
CNN's Christine Romans gives an overview of the examiner's findings.
"This is a scathing report that paints a picture of a company that came unglued, a company that had too much leverage, a company that was messing around with too much debt. And it also blames the investment banking model, Fredricka, in the U.S. that it was just too much risk in the system."
Much of the media's coverage has focused on Lehman's use of an accounting mechanism known as "Repo 105," which allowed the company to temporarily remove the assets from its balance sheets to appear healthier.
CNBC reports investment banks have legally used that strategy in the past, but that Lehman might have taken it too far by making the sales look permanent.
"At Lehman though, the examiner makes the claim that it was a bit more than that. And that it had the effect of really making that leverage ratio look a lot lower than it otherwise would have been through these so-called repo 105 transactions ... Now in typical repo transactions, you raise cash by selling assets with the simultaneous obligation to repurchase them in the next day or two. You're essentially funding long term assets with short term money."
The BBC explains why "Repo 105" didn't work for Lehman, and touches on other findings in the report.
"The importance of that is if you have too much leveraging on your books you can't withstand the volatility of the market. There's also criticisms about some of the key banks they deal with, the likes of JPMorgan Chase and CitiGroup, claiming that they expected all this collateral from Lehman and at the same time they kept changing various agreements, and that in turn pushed the bank over the edge."
But financial analyst Brad Hintz tells Bloomberg JPMorgan Chase and Citigroup aren't the bad guys in this story--They were just covering themselves when they realized Lehman was in trouble.
"They were acting purely in their best interest.... You grab every dollar of collateral you can when a counter party gets into trouble, and then you worry about it with the courts later. What we have here is the courts worrying about it. And it's clear that JPM and Citi were pretty aggressive in terms of grabbing collateral from them."
Writer: Newsy Staff
Producer: Nathan Giannini
