Obligatory #Lehman reminisce:10yrs ago I spent 2am-8pm daily desperately trying to fund the bank's FX balance sheet. Ironically, the measures the firm put in place in 1998 to reduce liquidity pressure turned out to be an albatross. Back then, we had access to USDs, but 1/
Counterparty credit concerns meant that swapping those USDs for FX was extremely tricky, leading to position liquidation. Saloman, in the end, backed to back most of these presumably under regulatory nudge and wink.... Anyhow, following 98 #Lehman sought to hold large foreign 2/
Currency funding across G10 given the assumption that as it was a US financial institution, it should find it much easier to borrow USDs than FX from foreign banks domestically in a liquidity crisis. The Fed's Liquidity programmes in late 07/early 08 (especially the PDCF) 3/
Of course, this assumption was only to hold if the market - and more importantly - Fed saw #Lehman as a liquidity not a solvency problem. The disastrous final earnings call floating SpinCo totally changed the market funding dynamic. In a normal environment, it would take 2hrs 4/
By the time Freddie & Fannie had gone, it was taking most of the day given gradual throttling of credit lines. The day of the call, it started to become very difficult. On the. Final Friday, I got in just after midnight to begin funding in Asia. I got about $1bn done by 7am. 5/
At an average USD rate of 9.6%. swapping euros, yen, aud and nzd. When London got in, the three tier market appeared: a price for US and foreign depository banks, a price for US investment houses and a price for #Lehman. I paid everything from 2% (a French bank: more below) to 6/
22% at about 2pm for a clip of $25m vs EUR in a market of usual size $1bn. There were no more prices for #Lehman in the FX Swap market after then. This proved unfortunate because it trapped around $15bn of liquidity in currencies the bank didn't need in an environment whereby 7/
Collateral restrictions at the Fed were pretty stringent. Perhaps they could have loosened them to allow fx derivative packages as the ECB did at the time, but perhaps it wouldn't have mattered anyway? So what about the French Bank? 8/
On Monday morning, after we had filed for bankruptcy, I got a call on the Reuters dealing system from a rather worried trader at SocGen Paris. "HIHI FRIENDS, WE DID O/N GBPUSD SWAP ON FRIDAY £500M. HAVE PAID GBP, YET TO RECEIVE USD. PLEASE CONFIRM THESE WILL BE PAID". I nearly 9/
Fell off my chair laughing that I had somehow found someone having a worse day than me! This poor chap had just lost close to $900m on a transaction previously seen as very low risk due to Lehman NY's back office not wiring same day settlement funds. I replied with the 10/
Wikipedia entry for Herstatt Bank, wished him well and evacuated myself to the pub. 11/11 
