PwC, the administrator of Lehman Brothers International Europe (LBIE),
is paying a fourth dividend of 7.8 pence in the pound to unsecured
creditors on April 30, which will lift payouts to 100 percent after
three bigger dividends in the past 15 months.
PwC estimated another 5 billion pounds of surplus cash could be paid
to creditors, but any extra cash cannot be paid until there is
agreement on how it is shared.
"Five billion pounds is a reasonable estimate. It depends on where
we end up with the further recoveries of cash we are seeking and the
quantity of creditors whose claims will eventually be agreed," said
Tony Lomas, lead administrator for LBIE and partner at PwC.
That means hedge funds and other specialist distressed debt
investors who gambled on how much money could be recovered from LBIE
could make hundreds of millions of pounds, albeit after waiting
It is hard to track the owners of the debt, but Lomas said more than
half was in the hands of distressed debt investors.
Industry sources have said investors have included big names such as
Baupost Group and Elliott Management.
Creditors' claims are trading at near 145 percent in a secondary or
"grey" market, indicating investors expect more than 5 billion
pounds of surplus will be paid. That grey market price plunged as
low as 10 percent in the weeks after Lehman's collapse, but has
steadily risen in the last five years.
The collapse of U.S. investment bank Lehman Brothers in September
2008 plunged the global financial system into chaos and its European
arm, based in London, was the largest and most complex part of the
group because it was a hub for trading and investments spanning
asset classes and dozens of countries.
The administrators have recovered money by unwinding derivatives
contracts and share trades, and winning several legal battles over
other parts of the former bank.
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Lomas said the full payout of claims showed regulators and central
banks developing plans to prevent a repeat of the financial crisis
need to make sure banks have enough liquidity to withstand a crisis,
and not just focus on capital strength.
"In times of distress customers panic and want their money or assets
back, so in a major, complex financial institution the
liquidity needs will be as significant as the balance sheet needs,"
PwC is expected to return about 40 billion pounds in total to LBIE's
creditors, including near 23 billion pounds for trust claimants and
about 16 billion pounds for up to 3,400 unsecured creditors.
Surplus cash could be paid later this year if creditors agree to a
proposal to be made soon made by PwC, which will propose a split
based on interest payments, foreign exchange moves and the claims of
subordinated debt holders. Unsecured creditors can get 8 percent
interest a year under UK law.
($1 = 0.5982 British pounds)
(Editing by Mike Collett-White)
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