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4 years since Lehmans: has anything changed?

Wednesday 19th September 2012

Last Saturday marked four years since the collapse of Lehman Brothers investment bank in 2008 – an event widely believed to be a tipping point for the global economic downturn and a trigger for wide-scale change in the financial services sector.

Here, Tony Lomas, lead administrator of LBIE and partner at PwC, takes stock of the momentous task of winding a global investment bank down: "The administration of LBIE has been the biggest and most complex administration I’ve ever worked on. Four years into the challenge, I am very proud of the progress we have made. We have already returned £14billion to clients and we are on the verge of a very significant milestone as we prepare to pay our first dividend to unsecured creditors later this year.

"However, there remains more than $9billion of securities and cash trapped with LBIE affiliates around the world, that we are working to recover, the majority of this being the property of LBIE's clients. We are also continuing our efforts to recover funds for the Client Money pool, and to agree client claims against that pool, following the Supreme Court outcome that we received earlier this year.

"Try as we might, using all the tools at our disposal and finding innovative solutions to the problems that we constantly confront, the extremely complex, legal and operational structure of the investment banks and their products, has made the task of winding down LBIE particularly challenging.

"Now that the dust has settled around the Lehman collapse, the focus of markets and regulators has shifted. Globally systemically important financial institutions are now required to produce and maintain Recovery and Resolution plans, although progress to date is varied and in many respects these plans only scratch the surface of the problems that would arise if another Lehman-style event were ever to unfold."

Elsewhere, Kevin Burrowes, PwC's UK financial services leader, considers the impact on the banking industry. He said: "Four years on from Lehman Brothers, the banking sector still has a long way to go to re-build trust. There needs to be a concerted response to the general crisis of confidence in banks as lack of trust is the true barrier to equity flow and funding.

"Despite the remaining economic challenges and lack of trust in the industry, the world needs a stable and vibrant banking sector. Banks have a major role to play in tackling some of the world's toughest economic challenges. Beyond the crisis, there will be opportunities in new economies, markets, demographics and technologies.

"The financial crisis has changed everything. Policy makers and regulators are leading the reform and forcing the pace, but they are only the catalysts. The real drivers - the expectations of a wider set of stakeholders, and the realities of a new economic and commercial landscape - will fundamentally and permanently reshape the banking industry. A 'new normal' will emerge in terms of performance benchmarks, industry structures, business models, financial structures, taxation, products, pricing conduct and remuneration."

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George Bailey

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