Investment Banks

Rearview mirror revelations on Lehman games ….Repo 105

In repo transactions, the asset sold continues to reside on the seller’s balance sheet since it is going to be repurchased soon anyway. Lehman took them off the balance sheet at the end of a quarter, used the proceeds to pay off debt so that it looked less leveraged at that time. Soon after the quarterly report, cash was borrowed, the asset repurchased and put back on the books. Apparently they thought they could do this since they were selling the asset for less than it was worth (taking $100 on an asset worth $105)… See page 733 of the examiner’s report here.