Lehman Brothers Rears Its Ugly Head In Germany

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

Another Lehman Brothers kerfuffle has erupted, this time in Germany, in broad daylight. With a stunning amount: up to €800 million ($1.04 billion) in fees for the insolvency administrator. It blows away the prior German record of €70 million paid to the insolvency administrator of Arcandor AG, the parent of department store and mail-order retailer KarstadtQuelle.

Hedge funds, which have massively bought up claims of the original Lehman creditors, are raising a ruckus. Apparently, they want to shame insolvency administrator Michael Frege, a partner at CMS Hasche Sigle, Germany’s largest law firm, into backing off his demands. As insolvency administrator, he is at the center of the case and is personally liable for willful or grossly negligent errors. He “must not receive a success premium, especially since he made some bad decisions by having sold assets below market value,” hedge funds postulated. More than €250 million would be out of the question.

It worked. Almost.

“€800 million in fees for processing a scrapped bank,” Sahra Wagenknecht chimed in. As deputy chairperson of the Left Party with an anti-capitalist agenda, she has jumped on the hedge-fund bandwagon. Employees or retirees, she said, “could only shake their heads” (her solution wouldn’t please the hedge funds: “We need a 75% tax bracket for income millionaires”).

But now CMS counterattacked with its own publicity campaign. And allegations. When Lehman went bankrupt in September 2008, only €100 million in liquid assets were available in the accounts of Lehman’s German operations, according to CMS Managing Partner Hubertus Kolster. To chase down and sell every possible asset, CMS put 100 lawyers and insolvency experts on the case. Now €5.6 billion could be paid back to the Bundesbank, and between €9 and €10 billion could be distributed to the remaining creditors, including the German deposit insurance fund and hedge funds. Creditors would receive about 80% of their claims—a lot more than originally expected.

(He didn’t mention that massive money printing and asset purchases by central banks around the world have created an epic credit bubble that inflated asset values and bailed out just about everyone, not just Lehman creditors.)

“Creditors who have been there from the beginning are all highly satisfied with the proceedings,” Kolster said. But the 100 lawyers and experts that CMS had assigned to the case already billed over €200 million. The court would make the decision over the final amount based on the complexity of the case and the amount of the assets. He conceded that it would likely be less than €800 million. On the other hand, he refused to say how much Frege would receive, but a success premium would be included.

Then Kolster fired his broadside: Hedge funds were creating a public outcry over the fees to pressure Frege into prioritizing and accelerating service of their claims. “But there was nothing to negotiate,” he said.

Frege lashed out against the hedge funds as well. In his function as insolvency administrator, he was solely concerned with the fundamental principle of German bankruptcy law that all creditors were to be treated equitably, he said, but for hedge funds that principle was “a foreign word.” What they wanted was preferential treatment.

At the creditors’ meeting on November 29, he’d propose a plan to complete the insolvency process in two to three years, which he considered extremely fast. If that failed, the courts could be working on this case for five to ten years, he said. It was the ultimate threat: if the hedge funds threw a monkey wrench into his grand plan, they might have to wait a long time to see the benefits of their bets.

But the fight, regardless of how it will turn out, demonstrates that big rotten banks can be unwound. It’s messy and unfair. It’s a corrupt smelly process with a lot of strong-arming. Bondholders, counterparties, stockholders, and others re-learn the notion of risk, re-experience the consequences of their decisions, and re-discover that there is a market for every crappy asset—even claims for the detritus of a collapsed house of cards—as long as it’s still an asset. If the price is low enough.

The alternatives to that messy cleansing process of failure are endless bailouts, the nonsensical horror show of TBTF, markets that no longer function freely but are controlled or manipulated by central banks, and untouchable bankers who get to propagate a profoundly corrupt system.

These bailouts that continue to this day are costly: by keeping Greece in the Eurozone, eurocrats or better “euro morons” have avoided a weak drachma and hyperinflation in Greece, writes George Dorgan. Instead, they have created stagflation. Read.... Euro Morons: Hyperinflation Successfully Avoided, Stagflation Successfully Created.

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Uncle Remus's picture

we need you Decks. this is a bad one.

Never One Roach's picture

Wall Street robber barrons know how to rape the system coming and going.



steveo77's picture

I have the UP DOWN volume indicator, extremely powerful, GDX, ES from Summer 2009, Magnetic Pole Shift (real info), Snorg Tee girls and Hawaii surf chicks in bikinis, Free Silver, and more.

for free, what a come on!


TradingTroll's picture

I down-voted you. Your website is boring. I wasted 10 milliseconds clicking.


Whats the internet come to when a chart, four lines and a few sentences count as content?

steveo77's picture

Go watch some dancing with the stars


falak pema's picture

buzz cocktail! Twitter teasedom! Instant clickomania!

I'm copyrighting it! 

blunderdog's picture

If they don't pay these guys well, they won't deliver the high-quality and disciplined performance we've all come to expect from our financial professionals.

Debt-speculators should just quit bitchin'.  This is hard work.

Weisbrot's picture

how much air can you blow in to a bubble before it pops?

Whiner's picture

You cannot stop the world wide bankruptcy ring. Judges, former bankruptcy lawyers delight in awarding other people's money to former cronies ( maybe a lucrative partnership awaits) and lead lawyers are shameless letting associate run wild, billing 24 hours a day. But who cares, vulture funds bought up all the debt early for pennies. Government overseers of system are toothless yard birds watching the carnage. I love it!

Widowmaker's picture

Puhlease, Mr. Durden.


Everything, and I mean everything is a crock of empty shit.

Print truth -- confidence is already gonzo, machines are trading with machines and all the economic buttfucks are championing this as reality.  Lehman was the biggest unadulterated bank heist of all time.  

You self-prophetic economic peasants need to get a fucking clue.

Weisbrot's picture

just like other institutions the 80% is giving the other 20% a bad name

fleur de lis's picture

Where's the Gestapo when you need them. They would round up the central bankers and their loansharks in a day.

willwork4food's picture

and today's gestapo are protection the Zionists. Irony?

Jam Akin's picture

The wheels of process always turn very slowly in Germany.  And time is money as we well know.

Vegetius's picture

The Europeans are desperate to hold together the dream of a Euro superstate with a small group in the heart of this edifice making all the rules with no democratic control. The likes of Barroso and Van Rompuy are unelectable in a pan European context.

This is the main reason for the suffering inflicted on the PIIGS to keep them in the Euro, but the North Europeans are going to have to pay and pay to keep it just so. Let’s also be honest and say that the elites in the PIIG countries are merely mouthing the word “Austerity,” just check out what they pay themselves. The bailing out of the banks is giving cover to a wider to the bad decisions made by successive Governments in Europe in relation to the EU and economic policy in these countries

falak pema's picture

don't be fooled by the hype : Only the Euro council members, true heads of state, run the Eurozone. Four top people are : Mutti Merkel, Hollande, Cameron, Monti; and COunt Draghi at ECB. Usual list of suspects, nation state heads of state. Forget all the other court eunuchs, they are just the bell-boys and spokemen for the main leaders. 

And after treaty of Lisbon, the Euro Parliament does ratify or nullify the budget that the Council will or will not agree on.

It is democratic, but its collegial whence the cacaphonia until 11 th hour. And Cameron is NOT on same page as Merkel and Hollande/Monti on budget issue. So these delays are precisely the expression of democratic debate amongst nation-states. Barroso has no say, except advisory; as for Van Rumpus....he just sits on the mantle shelf. 

The stakes for EURO nation states are HIGH, not for the Euro bureaucrats; they are just useful technicians who do what they are told. 

No Euros please we're British's picture

"Four top people are : Mutti Merkel, Hollande, Cameron, Monti; and COunt Draghi at ECB."

FIVE! Five top people are.........oh wait I didn't expect the Spanish Inquisition.

Dealyer Turdin's picture

Bring out the large comfy chair!

Ha! Ha ha!  Now are you ready to confess?

falak pema's picture

the banksta duck soup and its collateral damage. All the kings men realising they couldn't put Humpty Dumpty together again, decided to benefit from its broken pieces and yellowy yoke; always good for a nice little joke at the bank when you make deposit.

There you go! That's creative destruction for you; what WS and lawyer breed are so good at! 

Capitalism at its best! Ali Baba and the forty thieves are their icons.

Hey fellas, we have work to do in Greece then in Spain; never ending gravy train!

Tug of war between liquidators and HF galore! 

We all sail under the jolly roger! 


williambanzai7's picture

This is what creative German law firms are designed to do, chase Lehman assets.

Ghordius's picture

?? Seriously don't understand.

But I see the article is consistent with the thread of the “euro = morons” campaign.

Snarky sideremark: Americans allegedly like their politicians to look/appear pretty and dumb, so a side effect of this prop might endear some to the US public.

Give thanks to little graces...

cossack55's picture

We also like our politicians to be completely corrupt and undeniably stupid. The last "election" proves my point. Well, the last elections since 1960 have proved my point.

jeff montanye's picture

and that corruption, which appears to be increasing, may be why the best choice of resolution to the failed (bankrupt) too big to fails isn't even mentioned above: orderly reorganization fdic style, as the nordic countries did successfully in their banking crisis.

the choices are not just lehman chaos vs. unlimited bankster bailouts.  

depositors/customers and counterparties can be protected (in that order and enforcing fraud laws, i.e. mf global/jp morgan), shareholders wiped out, and solvent, smaller banks/firms brought to market. proceeds would pay for any taxpayer funds used, the remainder, if any, going to the bondholders.  

this process can also be used to claw back bonuses erroneously paid to management for illusory profits in prior years and customer money fraudulently paid to counterparties, as with jp morgan by mf global. current law explicitly covers all relevant financial firms, not just fdic guaranteed deposit institutions.