Bundesbank receives final payment from Lehman insolvency proceedings
The Bundesbank has received full payment of its original claim from the Lehman group's insolvency as well as accrued interest receivable and costs. Until recently, there was an outstanding claim, which was settled in January by a payment from the insolvency proceedings concerning Lehman Brothers Bankhaus AG (LBB).
"After six-and-a-half years of realisation and insolvency proceedings, we have not only received our original claim of around €8.5 billion but also covered accrued interest receivable and legal costs of around €0.8 billion to emerge from the process with our accounts in balance," explained Joachim Nagel, the member of the Bundesbank's Executive Board who is responsible for the Markets Department.
On 15 September 2008, the Federal Financial Supervisory Authority (BaFin) imposed a moratorium on LBB because its US parent group, Lehman Brothers Holdings Inc. (LBHI), was insolvent. LBHI had settled its monetary policy operations with the Eurosystem via its German subsidiary LBB. At the time of the moratorium, LBB's liabilities to the Bundesbank amounted to around €8.5 billion. These liabilities originated exclusively from monetary policy refinancing operations. As collateral for its monetary policy credit, LBB had pledged to the Bundesbank a total of 33 securities, which mainly consisted of highly complex products such as asset-backed securities (ABSs).
Realising these securities took more than four years. On the one hand, this was due to the complexity of the securities. On the other hand, the market for ABSs had more or less collapsed after 2008 and the Eurosystem had no experience in realising collateral of this kind. "We have shown that we can manage such a challenge in operational terms," Joachim Nagel noted, adding that the positive outcome had also been assisted by market developments which were more favourable than initially foreseen.
The Bundesbank was able to generate around €7.4 billion by the end of 2012 from sales as well as through interest and repayment receipts. This left around €1.1 billion outstanding from the original claim of roughly €8.5 billion. Additionally, interest receivable and costs totalling around €0.8 billion arose during the years of the realisation process. Altogether, this resulted in a residual claim of around €1.9 billion, which the Bundesbank lodged in LBB's German insolvency proceedings in early 2013. Since the parent group LBHI had guaranteed the liabilities of its German subsidiary LBB, the Bundesbank was also a creditor in the US insolvency proceedings. The Bundesbank received around €0.5 billion from the US proceedings and approximately €1.4 billion from the German LBB proceedings.