The tipping point

‘Beware the ides of March,’ said the soothsayer in Shakespeare’s Julius Caesar, predicting the date of the emperor’s demise. The phrase has been used to denote impending doom ever since. Those assessing the current collapse and transformation of the global financial system might well be similarly wary of mid-September.

In the UK, Northern Rock was brought to its knees on 14 September 2007, precipitating the first run on a British bank for more than a century. Just one year later, almost to the day, Wall Street investment bank Lehman Brothers, America’s fourth largest, filed for Chapter 11, the biggest corporate bankruptcy in history in terms of assets held. These are, of course, just two of the most dramatic manifestations of the unprecedented global events triggered by the credit crunch (see timeline ‘From credit crunch to global recession’, page 42).

On 10 September 2008, Lehman Brothers posted a loss of $3.9bn for the three months to August. Though sovereign wealth funds in countries such as Kuwait and China have come to the rescue of some banks, including Barclays and Citigroup, South Korea’s sovereign wealth fund pulled out of a last-ditch rescue deal for Lehman, triggering its collapse. After spending days searching frantically for buyers, it was announced on 15 September that Lehman had gone into an administration process, the European aspect of which PricewaterhouseCoopers would conduct. Tony Bugg’s 20-partner restructuring and insolvency team at Linklaters was appointed on the £20m mandate (see box ‘When it comes to the crunch’, page 40).

Within days, Simmons & Simmons was at the High Court in London to take action against Lehman on behalf of RAB Capital, one of the more bullish of its many hedge fund clients. RAB used Lehman as prime broker for its market cycles fund, which ran about $50m of the company’s $4.7bn assets under management. It had put in place legal agreements with the bank preventing re-hypothecation (whereby the prime broker is allowed to re-lend client securities held as collateral). Litigation partner Robert Turner, who specialises in contentious financial services matters, applied for an urgent hearing in an effort to recover the $50m that was frozen. RAB and Simmons failed to persuade the judge to accelerate the hearing of the case, which they wanted to be heard as early as 26 September, but, as Legal Business went to press, the hedge fund was continuing with the action to recoup its funds and a hearing was set for 31 October.

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