Once on the brink of death, the heads of Lehman Brothers in general terms, imagine the consequences of bankruptcy investment bank. "The massive destruction of wealth on a global scale", "will affect all financial institutions", "Assets of retail investors / retirees will be destroyed" - these are items from the bank for the government prepared a presentation on the implications of bankruptcy.
After the bankruptcy of Lehman, the largest in history, world stock markets by the end of September had lost more than $ 3 trillion, the fall of the index MSCI All Country World amounted to 7,2% and by March 9, 2009, when it reached the bottom - 46%. RTS the end of September lost 9.7%, dropping to 1211.84 points, and on Jan. 23 its value was 498.2. The rate of LIBOR for overnight dollar loans jumped from Friday, September 12, on Tuesday, September 16, at 4.29 percentage points.
Evening Sept. 12 heads of major global banks, the then Treasury Secretary Henry Paulson and Chairman of the Federal Reserve Bank of New York Timothy Geithner gathered to discuss the fate of Lehman. Paulson said: The White House did not give the bank a penny. A week earlier, the government has already nationalized the mortgage agencies Fannie Mae and Freddie Mac, and in March, organized a rescue investment bank Bear Stearns: JPMorgan Chase bought it, having received assurances of the Federal Reserve on problem assets by $ 29 billion (officials and regulators were still unaware that the 16 September they will have to save the insurance company AIG.)
To save Lehman had $ 30 billion in 2008, he was the largest underwriter of securities backed by mortgage loans. During the credit boom, the bank had taken too much (debts at the time of bankruptcy - $ 613 billion) and a lot invested in real estate. The situation is complicated by the fact that Lehman was an active player in the OTC derivatives, including swaps, credit - default "(CDS), collateralized debt obligations (CDO - broken for tranches with different levels of risk of mortgage-backed bonds), and so on. At a meeting on September 12-14, a key question was - as in the case of bankruptcy razrulit more than 1 million transactions involving derivatives, which attended Lehman.
Unintended consequences
Neither the bankers nor the regulators could not predict how large-scale bankruptcy of Lehman will be the consequences and how they target the not-related sectors - especially in money market funds and the market of corporate notes.
The first (their total assets - $ 3.6 trillion) in addition to bank deposits were considered the most reliable target for savings. But to 13.00 Monday shareholders Reserve Primary Fund, the largest U.S. money market fund with assets of $ 62.5 billion, filed an application for withdrawal of $ 18 billion, after it became clear that he has in assets - a bill Lehman at $ 785 million fund earlier promised shareholders that they "fall asleep with boredom" (so safe, it seemed, were investments), but now he had to stop accepting requests for repayment.
Money market funds were the main participants of the market of promissory notes (on them, according to the Fed, accounting for 40% of purchases). Stop their work has meant that companies of different sectors and sizes have lost the opportunity through the issuance of promissory notes to raise funds for ongoing activities - from paying salaries to utility bills. Banks with the help of bills sponsored by the issuance of long-term loans, this source has dried up, too.
The bankruptcy of Lehman had also been affected by the repo market, where the bank had entered into numerous transactions, including the security of mortgage bonds. This forced the Fed to announce on Sept. 15 that it will accept from banks in repo transactions are not only high quality securities with an investment rating, but also mortgage-backed bonds. The Fed has also become a counterparty in the market of promissory notes.
September 16 the first major player in Russia's market, "KIT Finance", has not fulfilled obligations to repurchase several billions of rubles. The reason for this non-compliance customers. A few weeks Railways and IG Alrosa bought the bank for 100 rubles., But already in 2009 on a program to improve the CIT needed about 130 billion rubles.
Soon the bankers and borrowers faced a new challenge - fall in the value of collateral and as a result, margin calls. Lending fell: bankers do not understand how to assess the credit quality of borrowers and collateral.
By the end of 2008 the Fed lowered interest rates to near zero, while the European Central Bank (ECB) and Bank of England - up to 1% and 0.5% respectively in 2009, the Federal Reserve and U.S. Treasury announced a program to support the liquidity and members of the financial system to $ 13.2 trillion. The ECB has issued loans to banks on an unrestricted basis. For the year to mid-2008, world GDP fell by 3.9%.
Year later
Over the past year in the field of banking regulation, nothing has changed, said Peter Solomon, the founder of the investment bank Peter Solomon, and in the past - the deputy chairman of the board of directors of Lehman. "We have no illusions about the fact that, if left to themselves, things will return to normal, healthy state - told the WSJ director of the National Economic Council under U.S. President Lawrence Summers. - Concern is only then, as a return of confidence .. . did not return the arrogance (the participants of the financial system).
Financial sector reform stalled. Close to realization, only the idea of limiting bonuses - and that's because the banks make good money on restoring the markets during the spring and summer, again began to devote more resources to reward staff and attract staff. This led to an explosion of criticism in society and among politicians.
Other ideas - staged under the control derivatives market volume of nearly $ 600 trillion, an increase in capital requirements, risk control, international supervision of large cross-border banks - so far no discussion, or are just beginning to be realized.
Some influential economists such as former Fed Chairman Paul Volcker and Chairman of the Bank of Israel Governor Stanley Fischer, believe that government should limit the expansion of banks. Soon after, as Geithner in January took over as finance minister, the president of Independent Community Banks of America Camden Fine said to him that the giant banks like Citigroup and Bank of America are a threat, the government should separate them and sell for parts. This idea was not included in the plan to reform the financial sector, which is presented in the spring administration of Barack Obama. Countries "twenty" merely discussing the idea of establishing committees of regulators from different countries, which would monitor the activities of international banks. Meanwhile, assets of Bank of America rose to $ 1.46 trillion in 2006 to $ 2.25 trillion on June 30, 2009
The banks have the appetite for risk returned. In the II quarter of the sum at risk (money that banks can lose on trading operations for one day) in the five largest banks in the U.S. exceeded $ 1 billion (see chart). According to the Office of the Comptroller of the Currency United States on 31 March, the nominal value of all derivatives in the banking system amounted to $ 14.6 trillion. Three years ago it was $ 5.5 trillion. Some banks have more than half the revenue received from derivatives trading. Governments will not put this market under control and within five years we have been because of him waiting for a new crisis, believes Mark Mobius, managing director of Templeton Asset Management. While regulators just want to transfer payments derivatives with standardized terms and conditions of contracts in clearinghouses.
Last week, the Basel Committee has decided to tighten capital requirements and limit the ratio of debt and equity 25. But agree on the details is expected until the end of 2010, and the introduction of requirements in practice will depend on local regulators.
Russia's banking system in September 2008 has resisted due to unprecedented efforts by the Government and the Central Bank, which succeeded in stabilizing the situation with liquidity, said Ekaterina Trofimova, director of financial institutions ratings Standard & Poor's. The system of refinancing, which was significantly expanded in Russia is in crisis, is now one of the most advanced in developing countries. According to S & P, banks for credit problems, need to level up to $ 40 billion in Tier I capital within 2-2,5 years. "While the problem of bad loans can not be solved - neither the state nor the owners, and banks have come out of the crisis is very weak. Normalization of the situation is unlikely until at least mid-2010," - said Trofimov.
Lehman Brothers was founded in 1850 after bankruptcy of the British Barclays bought Lehman business in the U.S., and Japan's Nomura Holdings - in Europe and Asia.
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