The biggest bankruptcy in the history of Chapter 11 is finally drawing to a close. With $639 billion in assets and $613 billion in liabilities at the time it collapsed, Lehman Brothers (LEH) dwarfed Enron, Worldcom and General Motors (GM) for the largest bankruptcy ever. Now, Lehman Brothers is finally coming out of bankruptcy after 1,268 days and can begin paying back its creditors.
“Our objective remains to provide the best results possible for creditors — by continuing to strategically position assets to produce strong values, to pursue the resolution of disputed claims and other matters in litigation, and to manage expenses in line with the asset disposition process,” said John Suckow, Lehman’s president and chief operating officer, in a statement, adding “We thank the hundreds of Lehman employees and outside professionals who have worked hard and diligently since September 2008 to achieve this monumental result.”
Massive Debts Collapsed Firm
Lehman Brothers was seriously over-leveraged and deeply invested in the subprime mortgage market when it went into bankruptcy, marking a historic collapse and the beginning of the policy of bailing out investment bank that were on the verge of collapse. When Lehman Brothers filed for Chapter 11 protection on September 15, 2008, it rocked the financial world and led to the Dow Jones, S&P, and Nasdaq all lose over 20 percent over the next month.
Lehman Brothers creditors include Goldman Sachs (GS) and Paulson & Co., which have made a combined $300 billion in claims. Lehman is currently sitting on $35 billion in cash and is selling of its assets in order to pay of creditors. Now operating out of just two floors of its Manhattan headquarters, the Lehman of today is a shadow of its former self. After years of negotiations with creditors and bankruptcy court, Lehman will now sell off its remaining $30 billion in assets and distribute the funds amongst its bondholders and other creditors.
Long, Expensive Road
Lehman Brothers had its payback plan approved by Bankruptcy Judge James Peck in December, and officially coming out of bankruptcy means that Lehman does not need to seek out court approval for sales of assets. Lehman, though, has also set a record for the cost of its bankruptcy. The largest bankruptcy in history also resulted in the highest level of fees, with almost $1.6 billion in fees being charged to various legal firms. This is more than double the $793 million Enron spent on its bankruptcy.
Financial Stocks Waning?
The news about Lehman comes as the bull run for banks that dates back to October could be drawing to a close. On February 16, Moody’s stated that it would be reviewing ratings cuts on debt for the major banks, a move that could mean a three-notch slip for Morgan Stanley (MS); a two-notch drop for JP Morgan (JPM), Goldman Sachs, and Citigroup (C); and a one-notch knock to Bank of America (BAC). This, combined with continued concerns over the write down on Greek debts, lower projections for growth in the Chinese economy, shrinking GDP in Europe, and rising gas prices could all combine to halt the market rally. Despite a 20 percent surge in equities value since late last year, the total percentage of stocks rated as “buys” by Wall Street Analysts has dropped 3 percent to 51 percent since the start of the year according to FactSet Research.
