It might be a little tough to choose sides in this one. Yesterday, Lehman Brothers Holdings filed suit against JP Morgan Chase alleging that Chase used inside information to extract $8.7 billion in assets from Lehman in the days leading up to Lehman's collapse. Lehman is seeking $5 billion in damages and a return of the $8.7 billion in excess collateral demanded by Chase when it was clear Lehman would not survive.
Chase contends the case is without merit, so there's no surprise there. At the heart of the matter is whether or not Chase used material non-public information (gleaned from counter parties and the Federal Reserve) to increase collateral requirements and grab what little cash Lehman had left before a stampede of creditors had access to the money.
According to the complaint, JPMorgan knew from this relationship that Lehman's viability was fast weakening, and threatened to deprive Lehman of critical clearing services unless it posted an excessive amount of collateral."With this financial gun to Lehman's head, JPMorgan was able to extract extraordinarily one-sided agreements from Lehman literally overnight," the complaint said. "Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors."
It sounds to me like Chase was just playing heads-up ball and protecting themselves and their shareholders. I think the case can be made that everyone in the market knew that Lehman was against the ropes in a big way, and it didn't take any inside information to figure out that you should pull your money out post haste. Am I missing something? Does Lehman actually have a case here?
Or is this another example of bankruptcy lawyers padding their wallets? $730 million in fees and expenses have already been paid out to the bankruptcy lawyers, including a ludicrous $263,000 for photocopies in four months. Are these scavengers just going back to the well?
The asset management department of the bank I'm interning at had a young portfolio manager who invested a million dollars in Lehman stock on the Thursday before the weekend collapse. Unrelated, but I still find this very amusing....
was he subsequently fired?
Lol, no. Apparently he's a good performer, made a bad bet..plus he knows people high up so he's safe. They still have "Lehman Brothers Holding" on their books too...that I don't understand.
D'OH!!!
The burden of proof will be on Lehman to prove that JPM used non-public information. And it would be really hard because with the way the market was going prior to Lehman's fall, JPM could easily argue that there was significantly more risk and that it was reasonable to increase collateral demanded. The odds are definitely against lehman, in a big way, IMO.
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