Realisation of Lehman collateral: ABS "Excalibur" sold to Lone Star
Since 2008, the Deutsche Bundesbank has, on behalf of the Eurosystem, been disposing of highly complex securities left over after the insolvency of Lehman Brothers Bankhaus AG (LBB) that it had received as collateral. Disposal is not yet complete. On 19 January 2012, Joachim Nagel, a member of the Bundesbank’s Executive Board, briefed the media on the situation at that time.
Of the 33 pledged securities that came into the Eurosystem’s possession in 2008 in the wake of LBB’s insolvency, the Bundesbank sold 28 back until January 2012. The largest single remaining asset was the securitisation “Excalibur”, which originally had a nominal value of €2.16 billion (senior tranche). Redemption payments and work on resolution have continuously reduced this figure.
The Bundesbank has now sold “Excalibur” to the private equity company Lone Star. After a first tranche was sold in January, another sales agreement was concluded with Lone Star on 12 April 2012, which is to be settled at the end of April. Overall, the face value of the transacted “Excalibur” structure amounts €1.4 billion. The parties have agreed to maintain confidentiality on all other details of the transaction.
Defaults by several of the Eurosystem’s monetary policy counterparties, including LBB, forced the Eurosystem to make considerable provisions; in 2008, they amounted to around €5.7 billion. Judicious disposals of the securities allowed these provisions to be whittled down to around €2.2 billion by end-2010 and some €0.95 billion by end-2011. With the sale of “Excalibur”, the Bundesbank believes it is on track to sell off all the outstanding Lehman collateral by end-2012.
Joachim Nagel, member of the Bundesbank’s Executive Board, stated that the legacy loans from the Lehman insolvency on the Eurosystem’s books would now soon have been cleared. The Lehman failure and its consequences for the global financial system should serve as a warning against the excesses of individual market participants. In future, financial products would have to be more transparent, he said.
Monthly Report April 2012
(Availabe only in German)