Unredacted Volume 5 Of Lehman Examiner Report Released, Goldman Acquired Lehman's Nat Gas Positions And Equity Derivatives

As observent readers will recall, Volume 5 of the examiner report was previously released in redacted form to hide most if not all of the prop data relating to Lehman's $4 billion in CME options and futures. The previously available redacted report can be found here. Valukas has just released the unredacted version which we are currently going through now. Some initial disclosures where the blackout has been removed:

• The firms selected by the CME to participate in the bidding process were Barclays, Goldman Sachs, Morgan Stanley, JPMorgan, Citadel L.P. and DRW Trading. The CME selected these six firms based on their capital, market concentration considerations and risk management expertise.
• The CME delivered the portfolio information regarding LBI’s house positions to potential bidders on Sunday and, by Monday morning, had received bids on LBI?s proprietary positions from five of the six firms. Some of the bids were for the entire portfolio; others were for segments of the portfolio, divided either by CME exchange or by product type. However, all of the bids involved substantial losses to LBI in the form of the transfer of the majority (and in several cases all) of the CME margin posted in connection with the positions. The CME delivered summaries of the bid results to Kaushik Amin, Lehman’s Global Head of Liquid Markets, during the day on Monday, September 15, 2008 – Lehman’s petition date.
• On Wednesday, Parikh informed the CME that LBCS had arranged for Goldman Sachs to purchase LBCS?s natural gas positions, which it traded at the NYMEX through LBI, in bulk. LBI, however, did not find a buyer for any of its other house positions.
• Goldman agreed to assume the natural gas positions as of the close of business on Tuesday, September 16, in consideration for the transfer to Goldman of $622,104,458.98 from LBI’s margin and collateral deposits at the CME. The NYMEX natural gas positions as of the close?of?business on Tuesday included options with a net option value of negative $482,102,458.98 for which Goldman Sachs would assume liability; consequently, the amount to be transferred to Goldman Sachs exceeded the Tuesday close?of?business position liabilities by $140 million. The aggregate Span Risk – or margin requirements – associated with these positions, $129,270,361 was less than this amount.
• The highest bid for the NYMEX/Clearport/COMEX (energy) derivatives portfolio was delivered by Barclays. Barclays assumed the energy positions cleared through the CME, as of close of business on Wednesday, in consideration for the transfer to Barclays of $707,413,215 from LBI’s margin and collateral deposits at the CME. The energy  positions included options with a negative net option value of $372,413,215, so the amount transferred to Barclays exceeded the Wednesday close?of?business position liabilities associated with the positions by $335 million. 6876 The aggregate Span Risk – or margin requirements – associated with these positions, $260,947,206, was less than this amount.
• The highest bid for the FX derivatives portfolio was delivered by DRW Trading. DRW Trading assumed the FX positions cleared through the CME, as of close of business on Wednesday, in consideration for the transfer to DRW Trading of $2,289,375 from LBI’s margin and collateral deposits at the CME. The FX positions included options with a net option value of $3,710,625, so the amount transferred to DRW Trading exceeded the Wednesday close?of?business position liabilities associated with the positions by $6 million. The aggregate Span Risk – or margin requirements – associated with these positions, $11,482,836, was greater than this amount.
• The highest bid for the interest rate derivatives portfolio was delivered by DRW Trading. DRW Trading assumed the interest rate positions cleared through the CME, as of close of business on Wednesday, in consideration for the transfer to DRW Trading of $333,489,665 from LBI’s margin and collateral deposits at the CME. The interest rate positions included options with a negative net option value of  $93,489,665 for which DRW Trading assumed liability, so the amount transferred to DRW Trading exceeded the Wednesday close?of?business position liabilities associated with the positions by $240 million. The aggregate Span Risk – or margin requirements – associated with these positions, $129,949,964, was less than this amount.
• The highest bid for the equity derivatives portfolio was delivered by Goldman Sachs. Goldman Sachs assumed the equity positions cleared through the CME, as of close of business on Wednesday, in consideration for the transfer to Goldman Sachs of $445,132,487 from LBI’s margin and collateral deposits at the CME. The equity positions included options with a net option value of $4,867,513 so the amount transferred to Goldman Sachs exceeded the Wednesday close?of?business position liabilities associated with the positions by $450 million. The aggregate Span Risk – or margin requirements – associated with these positions, $737,443,448, was greater than this amount.
• The highest bid for the agricultural derivatives portfolio was delivered by DRW Trading. DRW Trading assumed the agricultural positions cleared through the CME, as of close of business on Wednesday, in consideration for the transfer to DRW Trading of $52,452,362 from LBI’s margin and collateral deposits at the CME. The agricultural positions included options with a net option value of $4,547,638, so the amount transferred to DRW Trading exceeded the Wednesday close?of?business position liabilities associated with the positions by $57 million. The aggregate Span Risk – or margin requirements – associated with these positions, $55,230,535, was less than this
  amount.
• The bulk sale process (including the Goldman Sachs sale arranged by LBCS) resulted in a substantial loss to LBI exceeding $1.2 billion over the close?of?business liabilities associated with the positions, and a net loss of close to $100 million over the SPAN Risk (margin) requirements. This process represented the first and only time the CME had conducted a forced transfer/liquidation of a clearing member?s positions. The CME currently holds roughly $150 million of former LBI margin collateral remaining from the transfer and liquidation process.

Comments

[Thisson]

I don't get it - if these were market positions, why weren't they liquidated in the market?

[ThreeTrees]

My guess:  Due to the high concentration of assets in these relatively few firms unloading such a large glut of assets all at once would crash their prices, trigger a bunch of stops and crash prices more.

[N Rothschild]

coz u cant just liquidate that much!

[Commander Cody]

Forced feeding of the vultures.

[Cognitive Dissonance]

I mean, it's only fair that to the victor goes the spoils, right? Just because I pushed the bastard out the window has nothing to do with my right to divide up the booty (thirty for me, one for the taxpayer) or continuing to hide the various dead bodies.

[gs_runsthiscountry]

This information isn't really a revelation. Follow the course of events that transpired. Where did the Market Makers go? Upon Lehman's collapse back in 08, many, if not all MM positions were handed to GS.