Lehman Brothers’ CDSs add to bankers’ angst

by Gill Montia

Story link: Lehman Brothers’ CDSs add to bankers’ angst

The insurers of Lehman Brothers’ bonds could have to pay out around $360 billion, following the collapse of the investment bank, in mid-September.

When the bank filed for a Chapter 11 petition in the US Bankruptcy Court, the value of its bonds plummeted.

It is understood that around 350 creditors of the failed bank have debt insured through credit default swaps (CDS).

At the end of last week, Lehman Brothers’ debt was auctioned and attained 8.625 cents on the dollar.

Analysts had been expecting a higher figure, perhaps between 10 and 18 cents on the dollar.

Banks that are creditors of Lehman Brothers are now owed more money than anticipated and are looking for assurances that they will be paid under the credit default system.

However, credit defaults are traded in a market that some regard as lacking in transparency.

Little seems to be known of the size of the risks in the CDS market or which institutions are involved.

Lehman’s creditors, which could include leading UK banks, are therefore waiting nervously for their settlements, which should be made within the next two weeks.