One of the FT Alphaville team-member’s dads used to admonish them whenever they said “It’s not fair!” We would not be so harsh on any hedge funds that said the same thing this morning.
PricewaterhouseCoopers, Lehman’s administrator, may make margin calls on assets in the failed bank after all – those are assets as yet still frozen and beyond the reach of many hedge funds.
Via Finalternatives:
PricewaterhouseCoopers, which is administering the Wall Street bank’s bankruptcy and liquidation, said it may demand additional collateral on some US$65 billion in frozen assets. Even though they can’t touch those assets, PwC will make margin calls if the value of the securities falls.
‘If your bank fails, you still have to pay your mortgage,’ Steven Pearson, who is leading PwC’s liquidation of the London prime brokerage, told Bloomberg News. ‘Who is the holder of the risk of the securities? The hedge funds. If the value of the securities fell, they have to meet margin calls.’
‘The biggest losers will be those who had the most assets rehypothecated because they’re gone,’ Pearson said, referring to collateral Lehman loaned to other clients.
Worse still for Lehman’s 3,500 hedge fund clients, Pearson warns it could take years to figure out which assets clients are entitled to and which they are not.
‘It’s going to be many months and maybe beyond many months,’ he said. ‘It could take years to unravel.’
Lehman’s London prime brokerage had about 3,500 clients, including RAB Cap and GLG Partners. Some of those clients have already accused PwC of taking too long to unfreeze assets. This surely won’t help hedge fund-PwC relations, or hedge fund finances for that matter.
All together now: It’s not fair!
Related links
Margin calls prompt sales, drive shares even lower – New York Times
Hedge funds in fight to recover Lehman assets – FT