The Bundesbank received its final payment from the insolvency proceedings concerning Lehman Brothers Bankhaus AG (LBB) in January 2015. Following the realisation of monetary policy collateral, there remained an outstanding claim of around €1.9 billion. This has now been settled in full by payments from the insolvency estate of LBB and payments from the insolvency estate of the group parent company in the USA.

"After six-and-a-half years of realisation and insolvency proceedings, we have not only received our original claim of around €8.5 billion but also covered ac-crued interest receivable and legal costs of around €0.8 billion to emerge from the process with our accounts in balance," explained Dr Joachim Nagel, the member of the Bundesbank's Executive Board who is responsible for the Mar-kets Department.

Such an outcome could scarcely have been thought possible in 2008. The Bundesbank had, above all, to liquidate highly complex financial products such as asset-backed securities (ABS). The market for such paper was practically on the verge of collapse at that time and the Eurosystem had no experience in realising collateral of this kind. "We have shown that we can manage such a challenge in operational terms," Mr Nagel therefore concluded. "This positive result has been assisted by market developments, which were more favourable than initially foreseen."

Details and background

The Lehman group settled its monetary policy operations with the Eurosystem via its German subsidiary Lehman Brothers Bankhaus AG (LBB) until its insol-vency in autumn 2008, with BaFin imposing a moratorium on LBB on 15 Sep-tember 2008. At this time, its liabilities vis-à-vis the Bundesbank stemming from monetary policy operations stood at around €8.5 billion.

LBB had pledged mainly complex asset-backed securities (ABS) to the Eu-rosystem as collateral for its monetary policy refinancing operations. These ABS fulfilled the then current Eurosystem criteria for collateral assets. The Bundesbank did not specifically purchase these securities; it obtained the right to realise the collateral to cover losses arising from Eurosystem monetary poli-cy operations. Following the insolvency of LBB, the Bundesbank first set these securities aside from the rest of the insolvency estate and pursued a separate strategy to sell them off.

Due to the complexity of these securities, realising the assets took over four years. The Bundesbank was able to generate around €7.4 billion by the end of 2012 from sales as well as through interest and repayment receipts. This left outstanding around €1.1 billion of the original claim of around €8.5 billion. Addi-tionally, interest receivable and costs totalling around €0.8 billion arose during the years of the realisation process. Together with the revenue difference of €1.1 billion, this resulted in a residual claim of around €1.9 billion, which the Bundesbank lodged in LBB's German insolvency proceedings in early 2013.

LBB's liabilities were guaranteed by its US group parent Lehman Brothers Holdings Inc. (LBHI). The Bundesbank was therefore also a creditor in the US insolvency proceedings concerning the parent company's assets. In the course of 2013, it became apparent that the instalment payments from the two insol-vency proceedings would be sufficient to cover the entire outstanding claim. The Bundesbank received around €0.5 billion from the US LBHI insolvency proceedings and approximately €1.4 billion from the German LBB insolvency proceedings.