MASTER LIMITED PARTNERSHIPS

Saturday, September 27, 2008

OH NO...ITS MY MOTHER IN LAW.

2 comments:

Anonymous said...: Sorry for posting so much, but this article may lead to a short squeeze of epic proportions.

Institutions have discovered there is grave risk in lending shares to shorts for a small fee. What happens if institutions demand the return of their lent shares in a no naked shorting enviornment?

HS

http://www.nypost.com/seven/09272008/business/lehman_collapse_undermines_northern_trus_130964.htm
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LEHMAN COLLAPSE UNDERMINES NORTHERN TRUST

Comment By KAJA WHITEHOUSE
Posted: 4:29 am
September 27, 2008

Chicago investment manager Northern Trust told clients of its security lending business that they stand to lose a good chunk of change, The Post has learned.

It's yet another unexpected consequence of the Lehman Brothers' bankruptcy and the subprime mess.

Losses in security lending are rare. The last time it happened was back in 1992, experts say. And back then it was contained to one fund, which lost just $137 million.

This time the pain is expected to be bigger and broader - impacting an array of lenders, mostly mutual funds and pension funds.

In a conference call with clients yesterday, a Northern Trust official said cash put up as collateral in its security-lending business was invested in funds tied to Lehman debt, which might now be worthless. The official presented clients with several solutions for getting their money back. The goal, this person said, is to ensure clients "exit in a fair and equitable manner."

The full extent of the losses will depend on whether clients rush to take their money out - thereby forcing a fire sale of illiquid assets - or agree to wait until the dust settles, the official said in the call, which was intended for clients only.

Mutual-fund firms and pension funds loan stocks and bonds to brokerage firms in exchange for small fees. The loans are then backed by collateral. Lenders seek to squeeze out additional profits by investing the collateral in interest-bearing funds, in some cases backed by toxic asset-backed securities.

When Lehman went bankrupt, lenders got trapped in two ways: First, they lost their securities on loan to Lehman and second they lost their collateral by investing it in Lehman debt.

Northern Trust said clients needn't worry about losing securities loaned to Lehman. The firm said it rushed to retrieve loaned assets after Lehman went under, securing 70 percent. The firm has been working to buy back the remaining 30 percent, the official said.

But on the collateral, it could take months before clients get all their money back, and it isn't clear whether they will ever be made whole.; 9/27/2008 5:41 PM
joewxman said...: makes sense. You can't short financials so you short what you can. S&P futures short interest is huge and they will cover next week especially with end of quarter.

Monday should be interesting..and btw the more posts the better!!; 9/27/2008 6:43 PM

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