In October of last year we wrote an extended piece discussing the conflict between the bankrupt Lehman Brothers estate (i.e., its unsecured creditors) and Barclays, in which JPMorgan played a prominent part, as it was the critical tri-party repo clearing bank on all of Lehman's collateral that would subsequently go to Barclays. As we summarized, extortion attempts back then by Barclays only had the adverse effect of making Jamie Dimon very, very angry: "Barclays' attempt to nickel and dime JPM (and the US taxpayers) so infuriated Jamie Dimon that he penned an angry letter to John Varley, Barclays Group CEO (which CC:ed Barclays' president Bob Diamond), threatening with litigation in case Barclays is intent on sticking JPM with Lehman collateral that it thought was without value and not worth assuming in a time when every single day stock prices were crashing further lower." As we expected in October, the resolution would most likely involve litigation, as by dint of its collateral clearing position, JPM had unprecedented knowledge about Lehman's affairs: a special status that would likely be abused in a court of law. Sure enough, here is the lawsuit: the estate of Lehman Brothers, desperate to pick another several bps in recovery on their Lehman General Unsecured Claims, has sued JPMorgan, claiming Jamie Dimon's bank pushed Lehman into bankruptcy by forcing it to turn over $8.6 billion in collateral. As Lehman was completely insolvent long before JPM demanded any incremental collateral comfort, claiming that JPM was the catalyst for Lehman's bankruptcy is absolutely the same as saying that Goldman forced AIG's bankruptcy by increasing its collateral demands. While both arguments are ludicrous, should the JPM case proceed to court, it is tantamount that AIG immediately seek legal action against Goldman Sachs on identical grounds.
For a summary of our views on the vicious love triangle interplay between Lehman, Barclays and JPM in those long ago days, we refer readers to our October 2009 summary of the situation.
As we noted back then, the case was memorable in that courtesy of unsealed confidential filings, the US public for the first time had a chance to see the types of securities that could be pledged as collateral to both JPMorgan and to the Fed. We first noted that even bankrupt equities were acceptable to the Federal Reserve as collateral, an observation confirmed subsequently when the disclosure about the Lehman 105 fraud was made public by Anton Valukas (speaking of, when is the Lehman estate going to sue Dick Fuld for that particular alleged crime?).
From our original report, here is probably the most memorable quote of the total chaos reigning as Lehman was sinking:
Chaos reigned throughout Thursday evening. You sent another $40 billion in cash. Billions of dollars of securities were sent out and many were "DK'd" or otherwise sent back. By about 11 o'clock, when DTC shut down, you had apparently received a net total of approximately $42.7 billion of securities. All of the confusion was heightened by the absence of any definitive list of securities you were purchasing - an absence that we believe further supports the notion that you were taking all of the securities collateralizing our intraday advances.
And this environment is what Lehman will base a legal case on? Good luck.
The only good thing to come out of this will be even more insight into the Fed's repo operations, which however, we already know are a joke, as the Fed will gladly collateralize monkey feces in exchange for 100 cents on the dollar if it means propping up some institution that is not a direct competitor to Goldman's FICC trading deks.
Full filing below. It has the following cringeworthy phrasing that only a highly overpaid and marginally inebriated Curtis, Malet-Provost lawyer could come up with:
"A century ago, John Pierpont Morgan used his position atop the world of finance to shore up a teetering firm and rescue the nation from the brink of financial collapse. A century later, when the nation faced another epic financial crisis, Morgan's namesake firm stripped a faltering Lehman Brothers of desperately needed cash. On the bring of LBHI's bankruptcy, JPMorgan leveraged its life and death power as the brokerage firm's primary clearing bank to force LBHI into a series of one-sided agreements and to siphon billions of dollars in critically-needed assets."
Actually, JPM only siphoned off the assets that Lehman hadn't already done borderline criminal Repo 105 deals on, or the rest of its worthless CRE assets. We are not sure how JPMorgan was even able to find over $8 billion of quality assets in all of Lehman's balance sheet. What a pathetic charade by the Lehman estate. And again, for those who disagree - it is now time for AIG's shareholders to sue Goldman using precisely the same argument.