Lehman Brothers Holdings Settling with JP Morgan and Reemerging as Asset Management Firm “Lamco” from World’s Largest Chapter 11

Interesting series of news this week around Lehman brothers Holdings – they are looking to reemerge from Chapter 11 and settle a fight with JP Morgan in the coming weeks. In the JPMorgan settlement, they will take back $9 billion in illiquid securities and real estate in exchange for cash and collateral. According to a BusinessWeek article, the judge responsible for mediation suggested “that the purpose of the deal with JPMorgan, which would saddle Lehman with billions of dollars in illiquid securities, might be ‘to prime the pump of Lamco.’”


“Lehman’s plan involves the creation of Lamco, a subsidiary that would serve as an asset-management adviser for the estate. It would oversee the commercial real estate, residential mortgages, private equity and other remaining assets and sell them off to generate proceeds for Lehman creditors.”* Sources seem to indicate that Lehman Brothers Holdings has $30 to $40 billion USD (depending on JPMorgan settlement) to spin off into Lamco. Other sources suggest Lamco is soliciting third-party assets to manage for a fee and is also seeking outside investors for Lamco. Are we witnessing a Pheonix rising from the ashes?

“According to the 93-page plan, filed Monday by Lehman's lead bankruptcy lawyers at Weil, Gotshal & Manges, Lamco will manage real estate, private equity, and derivatives assets held by the defunct investment bank in order to sell them off at a premium to generate proceeds for Lehman creditors.”**

Sources:
*http://dealbook.blogs.nytimes.com/2010/03/15/lehman-bankruptcy-estate-proposes-reorganization-plan/
**http://amlawdaily.typepad.com/amlawdaily/2010/03/lehmanreorg.html

Wachovia Latest Bank to Pay Big for Violating AML Abuses

In 2009, we saw record breaking fines against banks violating US anti-money laundering (AML) rules. A Wall Street Journal article noted that in a securities filing, submitted Feb. 26, Wells Fargo said that the Wachovia bank unit "is engaged in discussions to resolve this matter by paying penalties and entering into agreements concerning future conduct."

Eugene Yoo, an AML expert at Actimize, a financial crime and compliance software solutions provider to the financial services industry, recently shared his top trends in AML watch list filtering. He points to the fact that fines are growing, with two of the top three highest fines ever in 2009. Based on his prediction, we should expect mega fines in 2010, maybe even topping the astronomical half billion USD Credit Suisse was fined. Even though Wachovia’s alleged violations happened before the acquisition, this may not bode well for Wells Fargo shareholders.

US and UK Getting Tougher on Market Abuse and Insider Trading

Head of UK Financial Services Authority this week said that Britain’s insider trading within the financial services sector is at an “unacceptably high level” A recent article in UK MSN speculated that the recent conviction of insider trader Malcolm Calvert pushed the FSA into action. A 10% rise in regulatory fees will help fund a boost of FSA staff to 3,700, enabling it to become much more pro-active in “tackling the high-risk culture” in financial services.

Similarly, on the other side of the pond, the US financial crisis and the revelation of massive Ponzi schemes from the likes of Madoff and others pressed the SEC into action too. Securities Industry News reported that “a new market abuse unit is building a sophisticated database to go on the offense to catch insider trading.” The SEC will increase its annual spending 11 percent to $1.23 billion, which includes a $12 million boost for technology.

Is there such a thing as a completely fair and open market? Maybe not, but it is certainly something we must strive toward.