Please note: Inexplain ko siya in my own words, tas nilagay ko na lang ung mga

sources na pinagkuhaan ko. Sorry kung ang gulo and hindi formal ung ginawa ko
Deleveraging is achieved when lenders ask for a higher collateral and downpayment.
Since the main problem of this case analysis is the lehmans leverage or continuous
leveraging, these following ACAs will enumerate the following ways on how to
minimize the problem:
ACA#1 Reduction of Rehypothecation
Rehypothecation is a practice that occurs in financial markets where a bank or a
broker-dealer reuses the collateral pledged by its client as collateral for its own
borrowing. Rehypothecation is widely used by prime brokers involved in the
collateralisation of derivatives transactions with hedge funds.

Liquidator PriceWaterhouseCoopers (PWC) confirmed in October 2008 that certain

assets provided to Lehman Brothers International Europe (LBIE) were rehypothecated
and no longer held for the client on a segregated basis and as a result the client may
no longer have a proprietary interest in the assets. As such, investors of Lehman
Brothers fell within the general body of unsecured creditors.
Actually, legal ang rehypothecation sa United States of America although merong
imposed limit unlike sa United kingdom na unlimited ang rehypothecation
transactions na pwedeng gawin, and in turn there are no client protection laws. Kung
maaalala niyo, ung Lehman na repo transactions ginawa din sa U.K because mas
lighter ang laws dun. How is rehypothecation related to deleveraging? Para maachieve and deleveraging, kailangan ng higher collateral and downpayment. Another
way is to reduce interconnectedness of the financial system, as you can read in
reference number 7. To reduce interconnectedness, one way is to reduce pledged
collateral to limit rehypothecation. In reducing rehypothecation, you also reduce
counterparty risks or the default risk therefore ensuring continuous inflow of payment
from loans. Pero at the same time, it also poses a risk for liquidity kasi nababawasan
ang ginagamit na funds especially for prime brokers.
Here are the ways on how to reduce rehypothecation:
-

segregation of clients accounts or holding of assets in custody accounts

(something na hindi sinunod ng Lehman)
Usage of multiple prime brokers
Applying for client money protection
Reduction of pledged collateral

nother thing to note in reduction of rehypothecation, hindi ko mahanap ang actual

cost to implement however studies show (in the sources) na costly sa point of view ng

clients to kasi sila ang magshoushoulder ng expenses for separate accounts and ang
pag-apply for client money protection.

1. https://www.imf.org/external/pubs/ft/wp/2009/wp0942.pdf
2. https://www.imf.org/external/pubs/ft/wp/2010/wp10172.pdf
3. https://books.google.com.ph/books?
id=VjsXc6uhwGAC&pg=PA7&lpg=PA7&dq=deleveraging+for+lehman+brot
hers&source=bl&ots=WFHS8gSH2Y&sig=mEALYr3H4K8kzdmQPyUGo3od6w&hl=en&sa=X&ved=0CCQQ6AEwAmoVChMIiKerp9PFxwIVwhi
OCh1-EALf#v=onepage&q=deleveraging%20for%20lehman
%20brothers&f=false
4. http://www.ft.com/cms/s/0/442f0b24-8a71-11dd-a76a0000779fd18c.html#axzz3jtS5Bjh6
5. http://www.federalreserve.gov/econresdata/feds/2015/files/2015022pap.pdf
6. https://www.treasurers.org/ACTmedia/Repo_faqs.pdf
7. http://econ.sciences-po.fr/sites/default/files/singh_0.pdf
8. www.davispolk.com/.../njordan.rcolby.practicallaw.article.apr10.pdf

ACA#2 Disclosing the need for capital

It is stated in Valukas report that the requests for further funding of Lehman brothers
was denied because of the healthy image it was continuously projecting. Analysts
therefore are stating that the Lehman has no need to tap into capital markets because it
has been performing relatively well.
The materials stated that Lehman did not project the need to tap the capital markets
because Lehman had significant liquidity to fund these activities. Valukas, 2010
In projecting a balance sheet that stated that they owned more than what they owed,
they did not access the Fed discount window to gain more capital for funding.
Expansion of capital is crucial in deleveraging a business.
Disclosure of the need for capital lacks concrete details on how much the process
costs.

1. http://www.cnbc.com/id/24953462
2. http://online.wsj.com/public/resources/documents/LehmanVol1.pdf
3. https://en.wikipedia.org/wiki/Basel_II

ACA#3 Hedge funds

Hedge funds are alternative investments using pooled funds that may use a number of
different strategies in order to earn active return, or alpha, for their investors.
Hedge fund managers can borrow unlimited amounts of money. Over-leverage and
flawed decisions during a crisis can wipe out the fund. Studies after the 2008 financial
crisis (references 2 to 5), have shown that hedge fund returns were far worse than
investors previously thought. Hedge funds would have made greater profits over the
1998 2010 period had they placed their money in US Treasury Bills.
Hedge funds are also illiquid, which is a contributing factor to the heightening of
lehmans leverage. Hedge funds are illiquid, so lehman continuously sinks in debt to
cover short term obligations.
I cant find any sources that can cite the costs if lehman minimizes its usage of hedge
funds or not concentrating HF to the subprime mortgage area but to segregate it
between the business evenly. Ang nangyari kasi sa lehman diba, masyado nila finocus
ung funds (also hedge funds) sa iisang market lang, which is the riskiest of them all.
Matagal pa yung flow ng pera sa market (subprime mortgage) kaya mas tumataas ung
leverage ratio ng Lehman.

1. www.zonebourse.com/NB-PRIV-EQ-PARTN 56192/pdf/87896/NB%20PRIV
%20EQ%20PARTN_Rapport-annuel.pdf