Friday, March 12, 2010

JP Morgan and Citibank Helped Collapse Lehman

Bloomberg reports today that both Citibank (C), and JP Morgan (JPM) helped cause the failure of Lehman Brothers. It rurns out that both demanded more collateral and changing guarantee agreements, according to a court-ordered report on the bankruptcy.

Anton Valukas, the bankruptcy examiner, reported that the demands for collateral by Lehman’s lenders had direct impact on Lehman’s liquidity, adding that “Lehman’s available liquidity is central to the question of why Lehman failed.”

In addition, Lehman executives themselves certified misleading statements about the bank’s finances. Valukas says that Fuld, 63, was “at least grossly negligent.”

Furthermore, regarding Barclays Plc’s purchase of Lehman’s North American brokerage, a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.”

Valukas said in the report that Fuld was “at least grossly negligent in causing Lehman to file misleading periodic reports”; "while its risks were rising because of long-term assets financed with short-term debt, Lehman’s executives engaged in conduct ranging from “non- culpable errors of business judgment” to “actionable balance sheet manipulation,” as they used “accounting gimmicks” to move assets off the balance sheet without disclosing that to the government, rating-agencies, investors or Lehman’s board".

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