Lehman’s Cash Crunch Caused by Lender JPMorgan, Creditors State

October 5, 2008 by · Leave a Comment
Filed under: Industry News 

This is interesting.  It looks as these proceedings take place, more details and facts are coming out to see how the collapse of these major financial institutions took place in such a quick fashion.  Lehman Brothers’ creditors claimed that JPMorgan had $17 billion dollars of their asset in safekeeping when they had the “freeze” and then subsequent takeover.

News Piece:

 Lehman Brothers Holdings Inc.’s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman’s collapse, creditors said.

JPMorgan had more than $17 billion of Lehman’s cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank “froze” Lehman’s account, the creditors claimed.

JPMorgan, the biggest U.S. bank by deposits, financed Lehman’s brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman “suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,” according to the filing.

The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said.

Harold Novikoff, a lawyer for JPMorgan at Wachtell Lipton Rosen & Katz, declined to comment, saying he didn’t see the filing until midnight. He previously said in court hearings that the bank continued to finance Lehman’s brokerage after its parent went into Chapter 11 bankruptcy proceedings.    

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