Is Lehman's off the ropes?

Will the Wall Street cornerstone climb back in the ring?

Looking back, the financial collapse of 2008 seemed to move like a glacier: slowly, inexorably, unstoppably. But in the midst of that slow-mo meltdown, a few memorable events struck with tectonic suddenness, altering forever our financial landscape and leaving us to wonder if there could ever be a recovery from such unprecedented economic shock.

The worst, by far, had to be the September 2008 collapse of Lehman Brothers, a 161-year-old cornerstone of Wall Street investment banking. Like so many bank failures of the time, this one was fueled by twin mistakes: an over-investment in mortgage-backed securities, and an inadequate supply of capital to cover the bets that were destined to go sour. The only unique part of Lehman’s story was the scale: they went down holding nearly $1 trillion in debt, resulting in the largest bankruptcy in U.S. history.

Knowing that, what do you say when Lehman’s emerges from Chapter 11 a mere three and a half years later? “Miraculous,” is what the bankruptcy judge said, and he’s right.

Despite its bankruptcy, Lehman’s was always flush with assets. Their real-estate holdings include some of the world’s most profitable hotels and office space. They’ve got tens of billions in private-equity investments and corporate bonds. They even own a sizable stake of Formula One Racing.

The management of Lehman Brothers has spent the last three years creating a liquidation plan, to turn those assets into a payday for Lehman creditors. The first checks are scheduled to go out in April, and are expected to total about $65 billion, or 17 cents on the dollar.

Not a great return, but certainly better than nothing, and probably much better than most creditors expected. 

So which part is miraculous — that Lehman’s has emerged from bankruptcy, or that they seem to be doing all they can to make things right? Either way it’s a sight to behold, and it’s nice to believe in miracles again.

The C4:

1. Lehman Brothers filed for Chapter 11 bankruptcy on September 15, 2008. It was the largest bankruptcy in U.S. history and one of the defining events of the Great Recession. 
2. Lehman’s is unwinding over $600 billion worth of debt by liquidating approximately $65 billion in assets.
3. After just three and a half years in bankruptcy, Lehman’s is emerging in March 2012 and beginning to repay creditors in April.
4. A concerted effort to do what’s right goes a long way toward fixing past mistakes.