16 January 2010

Lehman Liquidator Wins Court Approval to Spend $1.4 Billion to Buy Loans!

I love this one. I did not see this Boomberg article reproduced or commented anywhere.

The liquidator (the firm Alvarez & Marsal) is entitled to a bonus depending on the value realized from the sale of assets:

(emphasis mine)

“The more money Marsal brings in to Lehman’s bankrupt estate, the more its creditors can recover -- and the more his New York-based restructuring firm will make in bonuses.

The firm’s contract with Lehman entitles it to a bonus of 0.175 percent of all amounts above $15 billion recovered for unsecured creditors. That’s capped at 25 percent of the fees A&M gets for dismantling Lehman, according to court documents. Based on fees collected so far, the bonus cap would be $50 million."

And you bet, A&M is going to buy discounted loans for a $3.5 billion face value. If the market goes the right way, A&M will pocket up to $50 million bonus. If they are wrong, they will still get their fixed fees (already got $200 million) and creditors, who cares?

What an irony: a liquidator speculates with assets belonging to creditors, from a bankruptcy originating from the same ill-conceived bonus system that brought down the system to near collapse (Don’t misread me, I am totally for bonuses, but on realized profits, not notional ones)!

Change the remuneration formula: if your speculative actions go wrong, up to 75% of your fees will not be paid; believe me, A&M will not take the risk.

Doesn’t this remind you something? Face I win, tail you loose… The banks’ traders…


Bloomberg: Lehman Wins Court Approval to Spend $1.4 Billion to Buy Loans