Lehman's Repo 105 Counterparties Barclays, Mizuho, UBS, Deutsche Bank, And KBC May Have Attempted To "Squeeze" The Bank

Tyler Durden's picture

Yesterday we asked just who the counterparties on Lehman's Repo 105 transactions were. Today we get our answer: the parties that Lehman used exclusively to mask its true leverage ratio were Barclays, Mizuho, UBS, Mitsubishi, Deutsche Bank, KBC and ABN Amro. This is accompanied by disclosure from the Examiner that these Repos, which should logically have been cheaper to Lehman due to the overcollateralization compared to regular matched repo (remember: 105 instead of 100 plus a minor haircut), in fact were pricier, prompting Lehman staffers such as Mike McGarvey to speculate that counterparties may "try to squeeze Lehman." This is quite a critical development ahead of the lawsuit between the Lehman estate and Barclays (a Repo 105 counterparty), which not only refused to bail out Lehman in the 11th hour, but to subsequently go ahead and in the definition of a fire sale acquire Lehman Brothers' North American brokerage operations for pennies on the dollar, coupled with some serious additional trickery on the side. Another oddity: none of the counterparties were US-based. Did US banks know too well about the imminent collapse of Lehman and thus refuse to participate in the Repo 105 window dressing game? Or, much more relevantly, was Lehman terrified by retaliation of its US-based peers, (be it CDS or stock-based) and as a result refused to open up its deplorable balance sheet to them?

We read from the report:

In the 2007 to 2008 period, Lehman’s Repo 105 counterparties were primarily restricted to Mizuho, Barclays, UBS, Mitsubishi, and KBC, though some of these also tapered off their Repo 105 trading in 2008. E-mail from Chaz Gothard, Lehman, to Mark Gavin, Lehman, et al. (Sept. 4, 2007) [LBEX-DOCID 4553246] (“KBC are no longer able to finance our 105 agency trades. . . . This effectively means we only have 3 counterparts with which to transact this business – Mizuho, Barclays & UBS. Whilst they have taken all the paper we’ve thrown at them to date this situation should not be relied upon.”); e-mail from John Feraca, Lehman, to Ian T. Lowitt, Lehman, et al. (Feb. 28, 2008) [LBEX-DOCID 3207903] (reporting Repo 105 trades with “Barclays – $ 3 billion, UBS – $ 6 billion, Mizuho – $ 2 billion”); e-mail from Mark Gavin, Lehman, to Daniel Malone, Lehman, et al. (May 20, 2008) [LBEX-DOCID 736184] (noting in e-mail with subject line “RE: Repo 105 CPS” that “Mizuho - $5bln,” “[n]o longer at the table: Barclays up to $15 bln,” “UBS up to $10 bln,” “Mitsubishi up to $1 bln,” and “KBC up to $2 bln”);

And some other counterparties attempted:

In February 2008, Lehman found a new Repo 105 counterparty in ABN Amro Bank NV (London Branch). See e-mail from Nirav Patel, Lehman, to Kandy Hosea, Lehman, et al. (Feb. 29, 2008) [LBEX-DOCID 3383394]. Deutsche Bank was also a Repo 105 counterparty to Lehman in 2008. When a Repo 105 transaction with Deutsche Bank failed, Tonucci assigned Carlo Pellerani (International Treasurer) to ensure the problem was resolved. See e-mail from Paolo R. Tonucci, Lehman, to John Coghlan, Lehman (Mar. 25, 2008) [LBEX-DOCID 117336].

So now that we know who the counterparties were, here is how we know that they knew all too well that Lehman was in trouble and could be bled dry, as this was the last recourse the firm had:

Given that in a Repo 105 transaction, Lehman provided its counterparty with more collateral for the same amount of cash as in an ordinary repo, one might expect the interest rate to be lower, as the terms were better for the lender, i.e., had greater protection in the form of more collateral in the case Lehman did not repay its borrowing. The Examiner’s analysis shows that, on the contrary, the interest rate in a Repo 105 transaction was higher than in an ordinary week-long repo despite the overcollateralization. Based on witness statements that Lehman was in a “price taking situation,” and documents such as the e-mail in which Lehman staffers begged to increase the Repo 105 credit line with Mizuho to improve the balance sheet profile at quarter end, the higher interest rate in a Repo 105 transaction was likely a consequence of Repo 105 counterparties being aware of Lehman’s desperation.

Mike McGarvey, who is currently part of the Lehman Derivatives unwind team, said is noted as saying the following:

McGarvey, the author of the e-mail, stated that counterparties such as Mizuho knew that Repo 105 transactions received off-balance sheet treatment and as a result might “try to squeeze Lehman.

And in the vacuum of responsibility, here are some names which the Attorney General may want to invite for a conversation:

When asked directly, Joseph Gentile, a former FID Finance executive who reported to Gerard Reilly, did not believe that Lehman’s motive for undertaking Repo 105 transactions was financing. Gentile stated unequivocally that no business purpose for Lehman’s Repo 105 transactions existed other than obtaining balance sheet reliefGentile said that he received his “Repo 105 education” sometime near the end of Lehman’s 2006 fiscal year from Ed Grieb, Lehman’s Global Financial Controller who reported directly to then-CFO Chris O’Meara. According to Gentile, Grieb explained that Repo 105 transactions were a balance sheet management mechanism: “a tool that could be use d to reduce Lehman’s net balance sheet.” Gentile recalled that “Repo 105 was a vehicle that Grieb owned and he was using it to take my balance sheet away." When the Examiner asked for further explanation of that statement, Gentile said that if FID had “excessions” in its balance sheet, Grieb would authorize additional Repo 105 capacity to alleviate potential breaches of the balance sheet limit. Gentile explained that two ways existed for FID to make its balance sheet targets where excessions existed: by selling assets or by engaging in Repo 105 transactions. Similarly, Matthew Lee said there was no legitimate business purpose for Repo 105 transactions. In his view, Lehman’s Repo 105 practice was for “window-dressing the balance sheet to make the credit rating higher.”

First, it is beyond a reasonable doubt that 105s were merely used for window-dressing as the following chart from the Examiner demonstrates.

Second, we urge regulators to promptly sequester Mr. Grieb and ask him pointed questions about not only Chris O'Meara's knowledge of Repo 105s, but what CFOs were subsequently requesting that Lehman use the same off-balance sheet book cooking vehicle.

Third, as getting information out of US banks has proven next to impossible, it is time to bring in the counterparties: Mizuho, Barclays, DB, UBS and Mitsubishi, and demand that they disclose if any other banks use or have used comparable off-balance sheet gimmicks.

Lastly, it is time for Bob Diamond to take the witness stand, and disclose just how much of a factor any potential activity on his behalf to raise Repo 105 rates into Lehman's collapse may have had. Here is the proper analogy: just as Goldman benefited the most by cranking up its AIG collateral demands on it CDO exposure, so Barclays could have easily done the same. Net result: the purchase of Lehman NA for sub-blue light special price. As the lawsuit against Barclays is set to commence imminently, we will be very curious as to what disclosure Mr. Diamond reveals under oath.

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Cognitive Dissonance's picture

"So now that we know who the counter parties were, here is how we know that they knew all too well that Lehman was in trouble and could be bled dry, as this was the last recourse the firm had:"

The code of the Wall Street jungle, bleed others or be bled yourself. Greed run riot, in all it's forms and nuances. Welcome to the jungle of self regulation, I want to watch you bleed.


Joe Davola's picture

Henry Hill and the Robert's Lounge Crew faced jail time when they busted out a joint - then again, they did have the judges and police in their pockets.


I enjoyed Goodfellas so much that I've read the book several times.  Other than the dollar amounts, there seems to be little difference between the schemes described in the book and how these firms are run.

Ned Zeppelin's picture

Nice Runny Noses reference.

Me I prefer the Bard: "where black is the color and none is the number."


doublethink's picture



Fuld ‘Negligent’ as Lehman Hid Leverage, Report Says


Then-Chief Executive Officer Richard Fuld was “at least grossly negligent” for letting Lehman file financial reports in which a key gauge of strength was “reverse-engineered” through transactions known as Repo 105s, bankruptcy examiner Anton Valukas said in a report yesterday. Lehman auditor Ernst & Young LLP could be accused of “professional malpractice,” he said.




Just add "criminally" and we have the entire story.



Cognitive Dissonance's picture

"Just add "criminally" and we have the entire story."

In a world where semantics is the difference between a jail cell and a book deal, no one is going to say anything stronger than grossly negligent. The libel and slander lawyers would have a field day with anyone who stepped out on that limb without a court having said it first. Since the regulators and justice systems have been totally co-opted, don't expect verbal, written or legal charges of criminality any time soon.

The game is rigged. Don't expect anything otherwise and you won't be disappointed. It's not that the justice system has expectations that are too low, the public has expectations that are too high.

Don't worry, be happy.


Howard_Beale's picture

You are the DJ of the morning, CD.

Cognitive Dissonance's picture

And for my next number, I present to you .......Howard Beale in that fan favorite "Mad as Hell"


The short version.


dumpster's picture

make sure i get my 100 million bonus ,, i was a obedient trooper

Anonymous's picture

American media again silent. No reporting nor analysis.

US = Fraud as business model.

Capital flight is the logical consequence.

Get out. NOW !

Cistercian's picture

 The fourth estate has been coverted into a propaganda mill.

  Thank goodness for ZH!

 Epic as always Tyler!

Miles Kendig's picture

As the lists of fed counterparties from a variety of programs, from currency swaps to discount window access now notably moves full force into the tri-party repo market. This mornings game of musical chairs inside Romper Room gains in excitement.


Cognitive Dissonance's picture

"This is the song that doesn't end."

I LOVE Lamb Chops.

SteveNYC's picture



More appropriate before reading the crooks their last rites......

Miles Kendig's picture

Classic ref fo sho.  Might I suggest that we could try this....


Cognitive Dissonance's picture

Gathered with friends, passing the doobie and drinking a beer, stereo turned all the way up, listening to Pink Floyd and Rammstein. Those were the days of mind numbing naval gazing narcissistic self induced hypnosis where all was right in the world. Or at least in my little world. 

No wonder our generation has chosen the illusion of Fed speak, fiat currencies and puppet government. Power to the people has become the powers-that-be rocking a hypnotized world to sleep. One little sheep, two little sheep, all the sheep are happy, just don't stop the electronic television drug nor the IV drip of Zoloft.


Miles Kendig's picture

The power of the tweaker economy brought to life as it flails more fully into view for all to see as it is reflected back at each of us from our own bathroom mirror..


Real Estate Geek's picture

"The band is just fantastic, that is really what I think . . . oh, by the way, which one's Pink?"

Miles Kendig's picture

We don't know.  We were really drunk at the time .. and said..  like..  wow...

Howard_Beale's picture

LMAO---so appropriate, Miles.

Ned Zeppelin's picture

Astonishing reporting, TD.

SDRII's picture

Didnt the Fed extend Barclays a $20B line after the Bear Stearns fiasco? timeline?

SteveNYC's picture

It really is time, these mother fuckers should be hanged. The ENTIRE "banking" system, "capital markets", are a huge Ponzi/shell scheme, take your pick.

These firms EXIST for the sole purpose of extracting rent from society, each other, and any other schlep with cash they can get their hands on. They produce NOTHING except crime, fraud, greed and disgust.

America is completely FUCKED if these people are not prosecuted ASAP.

And another non-surprise here, that cesspool UBS was right bang in the middle of this. What a POS!

Anonymous's picture

+1 Amen Brother

Anonymous's picture

Now that we know who the counterparties were, we should ask them how their firm's and auditors valued the Repo 105s on their balance sheets.

Were they treated as purchases as LEH stated or financing arrangements? If none of them valued them as purchases as per the apparent accounting rules LEH relied upon then if adds further proof the statements were knowingly false and LEH's auditors looked the other way.

bobbleheadbanger's picture

squeeze the 'lehman'!!! ha ha, I get it.

AnonymousMonetarist's picture

'The lights are growing dim Otto. I know a life of crime has led me to this sorry fate, and yet, I blame society. Society made me what I am.'
- Duke (Repo Man)

Motorcycle Cop: Whatcha got in the trunk?
J. Frank Parnell: Oh... You don't wanna look in there.
(Repo Man)

'Sensors show there something's there, Captain.'

'Lehman Brothers' liquidity was a mirage. The firm said in early September 2008 that it had liquidity of $41 billion. The {bankruptcy examiner's} report says it had shrunk to just $2 billion two days later.'
-WSJ Heard on the Street

'People don't drink the sand because they're thirsty. They drink the sand because they don't know the difference.'
-President Andrew Shepherd

'Reading through the thousands and thousands of pages of Valukas' report has proven...quite entertaining. After having first uncovered the Repo 105 accounting gimmick, and E&Y (and, in a normal society, Tim Geithner) coffin nail, we are convinced that this is just the tip of the iceberg, and sure enough, as we read along, more stunners come to light. We will update .... with new discoveries, but for now, we present the episode of the Fenway Tri-Party Repo Market Clusterf%$* ("FTPRMC"), The Part Where Lehman Lied To Its Shareholders, And The SEC Gets The Middle Finger (Again), and the parable of Ben Bernanke's And His Scale Of 0 To 100 Of Systemic F%*$%dupedness.'
-Zero Hedge

These are the voyages of the starship Nancy Capitalism; to explore new outrages, to geek out new strife and new rationalizations, to boldly go where no pablum narrative has gone before.

Chances are if you're reading this post you're also a ZH reader so won't belabor the pins they are currently pushing into the Lehman pablum narrative voodoo doll.

Suffice to say, mistakes were made.

Mistakes, oh gentle reader, that would not be so graciously afforded to us common folk.

You see, if you or I, were to have a small business, with small creditors, and were then perchance to happen upon misfortune, say insolvency, then creating transactions out of whole cloth would not be an accounting gimmick or a balance sheet irregularity...

Verily, you or I, would be welcomed by the stilettos of opposing counsel doing a 'fraudulent conveyance' dance on our collective noggins.

But you see, in the Land of the Elites, the straw man of 'ordinary course of business' is raised up the Nancy Capitalism flagpole. It is, sardonically, a moving argument in the context that fraudulent conveyance has been institutionalized by GAAP, the SEC, the rating agencies, and their enablers.

If only there was some way for us gentle folks to comprehend such meanderings...

March 10, 2010
By Robert Sanders

An analysis of more than 70,000 galaxies by University of California, Berkeley, University of Zurich and Princeton University physicists demonstrates that the universe - at least up to a distance of 3.5 billion light years from Earth - plays by the rules set out 95 years ago by Albert Einstein in his General Theory of Relativity.

By calculating the clustering of these galaxies, which stretch nearly one-third of the way to the edge of the universe, and analyzing their velocities and distortion from intervening material, the researchers have shown that Einstein's theory explains the nearby universe better than alternative theories of gravity.

One major implication of the new study is that the existence of dark matter is the most likely explanation for the observation that galaxies and galaxy clusters move as if under the influence of some unseen mass, in addition to the stars astronomers observe.

Einstein's General Theory of Relativity holds that gravity warps space and time, which means that light bends as it passes near a massive object, such as the core of a galaxy. The theory has been validated numerous times on the scale of the solar system, but tests on a galactic or cosmic scale have been inconclusive.

These tests do not tell astronomers the actual identity of dark matter or dark energy. That can only be determined by other types of observations, such as direct detection experiments.

AM Here : Methinks you get the gist of my jibe. In the shadow banking system, only the occasional direct detection experiment
(bankruptcy examiner's report) can provide the actual identity of the dark matter, the unseen mass, that is exerting its' influence on our observable economic universe.

We all see, and are all experiencing, the distortions from this intervening material.

Nancy Capitalists in a Sovereign Democracy that are Hell Bent to Seek Rent. (AM Rule #10)

To stretch the analogy to a more chilling conclusion, dark matter accounts for the vast majority of the mass in the observable universe. Only future direct detection experiments / bankruptcy examiner reports / Fed Audits will truly tell us how far down the quantum rabbithole we are.

Or in other words , yes Virginia there is no collateral. (AM Rule #4)

Cognitive Dissonance's picture

"We all see, and are all experiencing, the distortions from this intervening material."

By far the greatest fraud perpetrated upon the many by the few is the illusion that we are alone, apart from each other, that we are born alone, live alone and eventually die alone. Meaning we're all powerless and so we should simply accept our lot in life. If that's the case, watch TV, each nachos and shut the fuck up.

Sadly there is no evidence at all of our isolation. To the contrary, there is ample evidence of a collective consciousness, that we are all connected in ways we simply have been blinded to by thousands of years of cultural indoctrination and "education". But we can't see it because of the distortions from this intervening material, which is the collective illusion we accept as truth and reality. 

This is why the indigenous cultures are slaughtered, one after another. For in these cultures there still lay the understanding of our collective oneness. So off with their head and assimilate the rest. The homogenization of humans. We are all living in Amerika.


AnonymousMonetarist's picture

An add-on per a Q&A on the concept of fraudulent conveyance ...

Q : Where is the fraudulent conveyance? The ZH post says that Lehman sold assets in repos with an obligation to buy them back, that in substance was a borrowing by Lehman. A fraudulent conveyance requires a disposition of assets for less than fair value consideration while insolvent. Where is the transfer of assets for less than fair value?

If Lehman filed bankruptcy, I could see how the use of cash to pay off some creditors instead of others resulted in a preferential payment that could be canceled by the bankruptcy trustee.

But I'm not seeing the fraudulent conveyance.

A: They represented financing transactions as sales days prior to reporting periods to reduce reported net leverage and balance sheet.

Was Lehman insolvent?

Was this transfer made to swindle,hinder or delay a creditor?

Was this material misrepresention of their balance sheet and leverage resultant from transferring assets for less than the reasonable equivalent value of those assets?

That would turn on whether or not the overcollaterization and resultant haircut would meet that threshold...

On a stand-alone basis maybe/ maybe not.. but when you are insolvent any cash out the door that is less than fair value is fair game for creditors.

In Q4 2007 Repo 105 usage was 38.6B, in Q1 2008 49.1B and in Q2 2008 50.38B ... so the overcollaterization/haircut would not be just a pittance.

It is not a stretch to suggest that this gimmickery when uncovered by a potential buyer would have DRAMATICALLY reduced the value of the debtor's estate. So there are the transactions and then the add-on effect of same.

Regardless, a ruse by any other name still smells as %$*@@.

Cognitive Dissonance's picture

"Regardless, a ruse by any other name still smells as %$*@@."

One must always ask why the transaction, movement, conveyance, whatever you want to call it, was done. There must always be a material business purpose which, when looking back and examined by a prudent and disinterested person, could be seen as either reasonable or unreasonable. Would you do this if you were dealing with your mother/son/wife, assuming you wish to deal fairly with your mother/wife/son? 

As in all things relating to conspiracy, what was the intent of the conveyance. Just because I can convey the assets in and out doesn't mean I should. What was the business purpose? Clearly in this case, it was to obscure. If one can't see that, then one is looking for reasons not to see.

Anonymous's picture

"This is why the indigenous cultures are slaughtered, one after another. For in these cultures there still lay the understanding of our collective oneness."

Have any or all of you read Ishmael by Daniel Quinn?

Highly recommended.....

Arm's picture

So who else was/is using Repo's 105?  How about a tiny little investigation? 

PwC, Ernst & Young, KPMG you know that these are fraudulent now... how about for once doing your job and publishing your going concern letters on the lot?

BlackBeard's picture

It's kinda like how skinheads rape other skinheads in jail!

tip e. canoe's picture

hmmm, all foreign banks.

what a convenient cowinkidink.

croissant, mr. morgan?

Anonymous's picture


do you recall massive stock buyback announced by LEH in the summer of 2007, at the very top of the market? (great timing too!)
Is there a way to see who among LEH insiders unloaded their LEH shares back to the firm at over $70/share starting in the summer '07 and who among them were "in the know" about the REPO 105?
When corporate officers do "bend" accounting rules, it's not because they do it "for the fir", heck no! They always do it to enrich THEMSELVES, and in this case - to cash out at the top.

Ripped Chunk's picture

What!?!?  I thought bankers were gentlemen?

Anonymous's picture

Let's go after the beast of all these whore's the US Gov!

Ripped Chunk's picture

US Government (why do I capitalize?????? habit I guess) has impressive powers but still just a tool and not the real power.

The real power is so well hidden and pervasive that it is seldom seen and mostly imagined by anyone even intelligent enough to percieve it.

Yet it is there and it acts swiftly and decisively when it hears an answer it doesn't like from ANYBODY.

SRV - ES339's picture


Nothing new here folks (same old, same old)... move along please.


The Money Masters...   





SilverIsKing's picture

DXY getting hammered.

Gold down.


ToNYC's picture

Buying/Burying gold is the ultimate trade for a dead future..all the live cash that as usual gets worth less after time could be doing right things is buried along with the lack of imagination. The point about cash is to make things happen; gold is a short circuit to a silo future. Thanks for getting out of play!

SilverIsKing's picture

Thanks for the stupid response.

Ripped Chunk's picture

A dead future?  It really depends on what you have in mind to occupy one's self now doesn't it?????

Anonymous's picture

The US Supreme Court insulated any counterparty from liability from private suit for aiding and abetting fraud in the Stoneridge case 5-4 decision. I wondered how long it would take....

Anonymous's picture

The US Supreme Court insulated any counterparty from liability from private suit for aiding and abetting fraud in the Stoneridge case 5-4 decision. I wondered how long it would take....

carbonmutant's picture

We need to subpoena all Goldman emails regarding repo 105.

Anonymous's picture

In semi-related news:

Treasury selling it's BOA warrants:


I'd bet that BOA is among the king daddies of REPO 105 creativity.