KPMG Sells Another $600 MM of Lehman Asia Assets, But Long Road Ahead

KPMG Sells Another $600 MM of Lehman Asia Assets, But Long Road Ahead



Lisa Chapman, Big4.com
June 21, 2010

We have blogged extensively about PricewaterhouseCoopers’ role as the administrators or Lehman Brothers Europe, including their $24,000 per hour price tag to the bankrupt holding entity (http://www.big4.com/?page=blog_item&url=pwc-administration-of-lehman-translates-to-24000-per-hour-491).

On the other side of the world, KPMG is handling the liquidation of Lehman’s Asian operations.

In September 2008, the Hong Kong High Court appointed three key KPMG partners, Eddie Middleton, Paul Brough and Patrick Cowley as provisional liquidators of 8 Lehman Brothers entities in Hong Kong, finally confirming this team in March 2009.

Since that time, it appears that KPMG has been successful in selling assets worth $1.5 billion. And the Financial Times of London reports that another $620 million of Asian assets, portfolio of loans, bonds and equity positions in the region has been realized.

For creditors, this is some bit of good news, as the average recovery rate has been close to 100%, meaning that 100 cents of each dollar has been recovered.


Another $300 million of disposals is in the offing, is mostly comprised of investments in China and India. Warren Phillips, the KPMG partner in charge of the disposals, told the Financial Times, “I’ve been surprised by how quickly the values of some of these assets have come back.”

Which brings the total to around $2.5 billion, if our math is correct. It’s not very clear how much there is to go, or the number of realized value keeps on ratcheting up as more asset sales are made.

In any case, the liquidation is exceedingly complex.

It has been variously described as “difficult to quantify and litigate”, “millions of transactions”, “frighteningly difficult:”, “tall order”, “thick layer of confusion and complications”, “borrowers who are unscrupulous”, “most challenging”, “so intertwined” etc. etc. Add to this litigious creditors, different bankruptcy regimes all over Asia, loss of information when folks when to Nomura and other troublesome factors.

Essentially, Lehman left behind a gigantic mess when it went bankrupt overnight. When things were humming along, it was a reasonable operation, even a going concern and HQ was able to keep all the complex inter-company transactions in decent shape. But the unraveling shows that each Lehman entity was a counter-party, lender or borrower from another Lehman entity in the same or different country. And add to that the frequent use of the notorious Repo 105. Which leaves a huge snarl of millions of transactions and open items when the rubber band which held the bank together, just snapped.

Which means that there’s going to be years and years of hard work (and consequent fees) for the 70-strong KPMG team.

And Eddie Middleton perhaps says it best, “I’m sure that there will be things like that (referring to the 1991 Bank of Credit and Commerce International collapse) that would keep Lehman going for a very long time.”