Lehman court ruling creates trans-Atlantic split

By Mike Peterson

Wednesday, January 27, 2010

A US court has ruled emphatically in favour of Lehman Brothers in a dispute over the bank's CSOs which could have far reaching implications for the structured finance market

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TAGS: Law suits

Comment by: Anonymous. Posted 14 years ago [2010-02-01 22:17:37]

Ironically, this whole problem has been created by BNY, London Branch. If they had just done their job, operated the documentation and paid out the collateral to investors (as other Trustees did), then no-one would have thought of disputing it. However by refusing to operate the documentation they made themselves a target for a vexatious lawsuit from Lehman. BNY have made a bad decision as to how to handle this and now the whole market is paying for it

Comment by: Anonymous. Posted 14 years ago [2010-01-31 21:35:48]

I can't blame BNY for protecting themselves. If judges don't enforce agreements, how are trustees supposed to know what to do? As if structured finance and CSOs haven't already suffered death by a thousand blows, this is just one more kick in the head. This ruling will probably accelerate the demand to a centralize trading.

Comment by: Anonymous. Posted 14 years ago [2010-01-27 21:40:18]

BNY's whole approach since Lehman's bankruptcy has been to focus solely on their own potential liability in this matter. From BNY's perspective if they appeal and win it doesn't necessarily do them any good, atlhough it may help investors. The best way to minimise their own liability is to do nothing (so they can't be sued for doing something) and to hope for a negotiated settlement between Lehman and investors who both agree not to sue BNY. Only then will they release the collateral to anyone. BNY are likely to take the course of action that they believe gives them the greatest chance of having a negotiated settlement.

Comment by: Douglas Watson. Posted 14 years ago [2010-01-27 17:03:09]

This decision appears to be a challenge to the very foundation of structured finance. The whole idea is to structure a security that "deals with bankruptcy" by segregating the originator's assets being securitized into a bankruptcy-remote entity the contractual language of which will make the bankruptcy of the originator at worst a delay and ideally a non-event. I would think BNY Mellon would have to appeal.

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