Nearly a year after Lehman Brothers collapsed, hedge funds are still waiting for the return of money held in prime brokerage accounts by Lehman Brothers International (Europe).
More than $35 billion of hedge fund assets were frozen when the bank collapsed. For months the hedge funds have argued that the money needed to be returned to them promptly to avoid their own collapse. Around $13 billion has already been returned.
Now PricewaterhouseCoopers, the administrators for bankrupt Lehman’s London-based unit, have put forth a plan that would let hedge funds recover up to $11 billion of those frozen assets. The proposal requires approval by 90 per cent of Lehman’s clients, who have until December 2 to vote on the plan.
If the plan is approved, PwC hopes to set a deadline for funds filing claims for the end of February. The assets could be returned by the end of March.
An earlier attempt to speed up the return of the hedge fund assets was struck down by British courts.
The long delay in getting assets out of Lehman demonstrates the wisdom of the modern day runs on the banks that we saw last year, when funds tried to pull money out of firms that were rumoured to be in trouble. That was often described as a panic. But, with hindsight, we can now see that leaving money inside a failing financial firm can have serious costs.
Reuters has more on the latest developments.