Experts Discuss the Impact of Lehman’s Chapter 11 Filing and the Lessons Learned for Large Financial Institutions

Date: 
September 12, 2013
Issue: 

Lehman Brothers Holdings Inc. filed for chapter 11 protection, the largest filing in U.S. history, on Sept. 15, 2008, an event that ultimately unveiled the severity of the coming financial crisis. Some of the primary figures involved in the case will come together during an ABI media teleconference to examine the Lehman chapter 11 case and the lessons learned from it in so that large financial institutions can be better equipped to emerge from financial distress in the future.

Speakers: 

Bankruptcy Judge James Peck (S.D.N.Y.; New York) presided over the Lehman Brothers chapter 11 case.

Speakers: 

Harvey Miller of Weil, Gotshal & Manges LLP (New York) was the lead debtor attorney for Lehman Brothers.

Speakers: 

Dennis Dunne of Milbank, Tweed, Hadley & McCloy (New York) represented unsecured creditors in the Lehman case.

Speakers: 

Bryan Marsal of Alvarez and Marsal (New York) served as Lehman’s Chief Executive Officer after it filed for chapter 11 until 2012.

Speakers: 

Chris Kiplock of Hughes Hubbard & Reed LLP (New York) worked with the team of attorneys representing trustee James W. Giddens in liquidating Lehman Brothers.

Moderator: 

ABI Fall 2013 Resident Scholar Kara Bruce of The University of Toledo College of Law.

Background: 

On Sept. 15, 2008, Lehman Brothers Holdings Inc. filed for chapter 11 protection listing nearly $691 billion in assets and $613 billion in liabilities, making it the largest filing in U.S. history. Lehman borrowed significantly to fund its investing in the years leading up to its bankruptcy in 2008, a process known as leveraging. A significant portion of this investing was in housing-related assets, making the company vulnerable to the downturn that occurred in the housing market. Lehman held large positions in subprime mortgage securities, and as the subprime mortgage industry plummeted, the company incurred a $2.8 billion loss in the second quarter of 2008. Despite searching for a deal to alleviate the debt and laying off thousands of employees, Lehman could not stem the losses and flagging investor confidence, and so was forced to seek chapter 11 protection.

Due to the spiraling events of the global economic crisis in 2008, financial services company Barclays was approved to acquire the core business of Lehman Brothers on Sept. 22, 2008. "I have to approve this transaction because it is the only available transaction," Judge Peck said in his ruling. Lehman’s bankruptcy created a domino effect throughout the entire financial services industry as weaknesses in many banks and funds were exposed as a result of Lehman’s downfall. Although Lehman is not seen as being the cause of the financial crisis, many experts point to Lehman’s chapter 11 filing as an illustration of the severity of the global economic situation in late 2008.

Although Lehman Brothers emerged from bankruptcy on March 6, 2012, the effects of Lehman’s filing, as well as the resulting policies erected in response to the financial crisis, continue to be felt by the finance and banking industry. The Dodd-Frank Act was signed by President Obama in 2010 and included a provision (Title II) to allow for “orderly liquidation authority” (OLA) over distressed large financial institutions. The OLA provision was designed to provide a process outside of the bankruptcy system for quickly and efficiently liquidating large, complex financial companies that are close to failing; in these cases, the Federal Deposit Insurance Corp. is appointed as receiver to carry out the liquidation and wind-down of the distressed company.

The teleconference featured the primary figures involved in the Lehman Brothers chapter 11 case discussing the filing, the lessons learned from Lehman and what the future holds for distressed large financial institutions. Members of the media who have additional questions for the speakers should contact John Hartgen at jhartgen@abiworld.org or 703-894-5935.

Audio: 
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