The Lehman Brothers Bankruptcy C: Managing the Balance Sheet Through the Use of Repo 105

Yale Program on Financial Stability Case Study 2014-3C-V1

18 Pages Posted: 12 Apr 2015

See all articles by Rosalind Wiggins

Rosalind Wiggins

Yale Program on Financial Stability

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: October 1, 2014

Abstract

Anton R. Valukas, the Lehman Brothers court-appointed bankruptcy examiner, produced a 2,200-page report detailing possible claims that the estate might pursue, and he identified several, from company officers to its independent auditors. The most startling revelation of the report, however, was that, during its last year, Lehman had relied heavily on an unusual financing transaction — Repo 105. The examiner concluded that Lehman’s aggressive use of Repo 105 transactions enabled it to remove up to $50 billion of assets from its balance sheet at quarter-end and to manipulate its leverage ratio so that it could report more favorable numbers. This case considers in-depth Lehman’s questionable use of Repo 105 transactions and its impact.

Keywords: Systemic Risk, Financial Crises, Financial Regulation

JEL Classification: G01, G28

Suggested Citation

Wiggins, Rosalind and Metrick, Andrew, The Lehman Brothers Bankruptcy C: Managing the Balance Sheet Through the Use of Repo 105 (October 1, 2014). Yale Program on Financial Stability Case Study 2014-3C-V1. Available at SSRN: https://ssrn.com/abstract=2593079 or http://dx.doi.org/10.2139/ssrn.2593079

Rosalind Wiggins

Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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