Repo 105

It was described as a “lazy way of managing the balance sheet” (Mensah, n.d.). A repo agreement involves temporary transfers of securities with an exchange in cash, which would be settled when the borrower repays the money with an agreed interest rate and repossesses the securities. In the legal perspective, the legal title of the securities shifts from Lehman Brothers to its buyer until the occurrence of repurchase. According to the repurchase agreement, it is accepted as a secured loan liability on the balance sheet when the seller received cash by selling its securities. Then, the liability would be disappeared on the balance sheet after the repayment of this loan (Akbarli, 2012). On the other hand, haircut is the amount that by which the security amount surpassed the borrowed amount, which is usually 2%. If the investment bank does not follow the terms of the haircut transaction, the lender keeps and sells the securities. In the case of Lehman Brothers, it established new types of transactions namely repo 105 and repo 108 by setting higher haircut rates of 5% and 8% respectively. Under this financial action, the transactions were recorded as sales but not loans, and omitted securities and liabilities from its balance sheet (Jeffers, 2011). This allowed the decrease in leverage ratios and…

Lee emphasized on how the Lehman’s use of Repo 105, which was used to move about $50 billion in debt off the Lehman Brothers book (Jennings, 2012, p.289-290). However, Jennings (2012) explain that the firm’s auditor Ernst & Young, described Mr. Lee’s memorandum as “pretty ugly,” and determined that his claims were irrelevant and baseless which Mr. Lee was dismissed from Lehman Brothers (p.290). Shortly after Mr. Lee was let go Lehman declared bankruptcy in September 2008. According to Jennings…

Think about the feeling when a very special plan gets cancelled. Maybe having a dream get crushed can have a positive outcome. The Avro Arrow (CF-105) was a state of the art jet that was built in 1949 to help defend North America in case of attacks during the Cold War. The aircraft gave millions hope for a brighter future, but in the end let many down because of the Cold War and its nuclear warfare. Chris Gainor states in his novel that, “ the legions of Canadians who saw the Arrow as a symbol…

unethical and irresponsible in their actions. According to the report, there was an “erosion of standards of responsibility and ethics that exacerbated the financial crisis.” Lehman Brothers was not alone in this type of risky investment, other large banking institutes also purchased mortgage backed securities from subprime lenders. The report went on to say that these lenders were aware that the loans were likely to be defaulted on, yet continued to make the loans. (FCIC, 2011) Additionally,…

corporation. Common shareholders have voting rights and may receive dividends. Preferred stock represents nonvoting shares in a corporation, usually paying a fixed stream of dividends. While corporate bonds are long-term debt by corporations, typically paying semi-annual coupons and returning the face value of the bond at maturity. 2. While the DJIA has 30 large corporations in the index, it does not represent the overall market nearly as well as the 500 stocks contained in The Wilshire…

contractual obligation to make the preferred stock dividend payments. Failure to make payments does not set off corporate bankruptcy. With respect to the priority of claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has a higher priority than common equity but a lower priority than bonds. 2. Money market securities are called “cash equivalents” because of their great liquidity. The prices of money market securities are very stable, and they can be converted…

Intermediate 11. a. The accounting statement of cash flows explains the change in cash during the year. The accounting statement of cash flows will be: Statement of cash flows Operations Net income Depreciation Changes in other current assets Change in accounts payable $95 90 (5) 10 Total cash flow from operations $190 Investing activities Acquisition of fixed assets Total cash flow from investing activities $(110) $(110) Financing activities Proceeds of…