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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
On September , executives from Lehman Brothers apprised executives at JP
Morgan, Lehman’s tri-party repo clearing bank, of the third-quarter results that it
would announce two weeks later. A . billion loss would reflect “significant asset
write-downs.” The firm was also considering several steps to bolster capital, includ-
ing an investment by Korea Development Bank or others, the sale of Lehman’s invest-
ment management division (Neuberger Berman), the sale of real estate assets, and
the division of the company into a “good bank” and “bad bank” with private equity
sponsors. The executives also discussed JP Morgan’s concerns about Lehman’s repo
collateral.
On Monday, September , more than New York Fed officials were notified of a
meeting the next morning “to continue the discussion of near-term options for deal-
ing with a failing nonbank.” They received a list documenting Lehman’s tri-party
repo exposure at roughly billion. Before its collapse, Bear Stearns’s exposure had
been only to billion. The documentation further noted that counterpar-
ties provided of Lehman’s repo financing, and that intraday liquidity provided by
Lehman’s clearing banks could become a problem. Indeed, JP Morgan, Citigroup,
and Bank of America had all demanded more collateral from Lehman, with the
threat they might “cut off Lehman if they don’t receive it.”
On Tuesday morning, September , news there would be no investment from Ko-
rea Development Bank shook the market. Lehman’s stock plunged from the day
before, closing at .. To prepare for an afternoon call with Bernanke, Geithner di-
rected his staff to “put together a quick ‘what’s different? what’s the same?’ list about
[Lehman] vs [Bear Stearns], as well as about mid-March (then) vs. early Sept
(now).” The Fed’s Parkinson emailed Treasury’s Shafran about his concerns that
Lehman would announce further losses the next week, that it might not be able to
raise equity, and that even though its liquidity position was better than Bear Stearns’s
had been, Lehman remained vulnerable to a loss of confidence.
At : P.M., Paulson convened a call with Cox, Geithner, Bernanke, and Treasury
staff “to deal with a possible Lehman bankruptcy.” At : P.M., Treasury Chief of
Staff Jim Wilkinson emailed Michelle Davis, the assistant secretary for public affairs at
Treasury, to express his distaste for government assistance: “We need to talk. . . . I just
can’t stomach us bailing out lehman. . . . Will be horrible in the press don’t u think.”
That same day, Fuld agreed to post an additional . billion of collateral to JP
Morgan. Lehman’s bankruptcy estate would later claim that Lehman did so because
of JP Morgan’s improper threat to withhold repo funding. Zubrow said JP Morgan re-
quested the collateral because of its growing exposure as a derivatives trading coun-
terparty to Lehman. Steven Black, JP Morgan’s president, said he requested
billion from Lehman, which agreed to post . billion. He did not believe the re-
quest put undue pressure on Lehman. On Tuesday night, executives of Lehman and
JP Morgan met again at Lehman’s request to discuss options for raising capital. The
JP Morgan group was not impressed. “[Lehman] sent the Junior Varsity,” JP Morgan
executives reported to Black. “They have no proposal and are looking to us for
ideas/credit line to bridge them to the first quarter when they intend to split into
good bank/bad bank.” Black responded, “Let’s give them an order for the same drugs
