Report escalates Lehman ineptitude to new level

By Antony Currie, Reuters-Breakingviews 823AM GMT twelve March 2010

Anton Valukas, the investigator for the failure court, reckons there is a clever box - or a "colourable claim" as he calls it - opposite Lehman Brothers" arch comparison manager Dick Fuld.

The investigator for the failure court, Anton Valukas, portrays the investment bank"s arch Dick Fuld and his lieutenants as some-more hubristic and unhandy than initial thought.

The sardonic inform additionally sum a array of balance-sheet shenanigans that could land the former tip coronet and their auditor, Ernst & Young, in court.

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Among the toxins detected was something called Repo 105. This accounting gimmickry masked the distance of Lehman"s change piece as the vigour grew for investment banks to revoke their precedence at the finish of 2007 - that Lehman additionally was you do at the time.

Even if Repo 105 wasn"t fatal it was positively poisonous. Lehman had been abusing it as far behind as 2001, utilizing repurchase agreements to financial resources but, distinct with standard repo transactions, treating them for accounting purposes as sold.

This enabled Lehman to cover up the loyal leverage, creation it appear reduce than it essentially was. Lehman even indispensable the abroad auxiliary to have it work sometimes.

Bart McDade, the Lehman comparison manager in assign of timorous the change piece disparagingly referred to Repo 105 as "another drug we ran on".

That sounds similar to a crack of fiduciary avocation - nonetheless Valukas doesn"t think it was.

He does, however, reckon there is a clever box - or a "colourable claim" as he calls it - opposite Fuld and the firm"s 3 financial chiefs in the last twelve months Chris O"Meara, Erin Callan and Ian Lowitt.

What"s more, Ernst & Young could be on the offshoot for veteran loosening for permitting the trades to pass muster.

Through his lawyer, Fuld has disavowed believe of Repo 105 or how it worked.

The 2,292-page inform is a page-turner even but this ban revelation.

It paints a far some-more minute design than formerly accessible of comparison government desiring their own hype, ignoring flourishing risks, and their deputies" concerns, as they built up bigger positions in illiquid resources similar to blurb genuine estate and in isolation equity.

They overrode the bank"s own risk boundary on a unchanging basement and didn"t embody these positions in highlight exam scenarios.

Whether or not Fuld and his associates finish up on trial, Valukas has at slightest drafted a illusory government guide.

It"s the most appropriate request nonetheless from this predicament on how to forestall destiny failures. It should be imperative celebration of the mass for stream and would-be bank chiefs - and their regulators.