lehman brothers decision tomorrow, page-4

Dear all,
Apologies for the lateness of my posting but having over 20years experience in the derivatives market and being involved in the development of the wording of derivatives contracts in the early stages of the development of the market, my view is that NGF are not going to escape their obligations because the Lehman entity went into bankruptcy.
One of the reasons is because nearly all but the earliest of derivatives contracts contained the ability to assign the contract to another party, albeit with the other side's approval which could not be reasonably withheld.
The reason for this was the introduction of capital adequacy rules requiring banks to make capital provisions for the contingent liabilities that derivatives, such as swaps, forwards etc, and hence allowing the banks to assign the swap contract to another counterparty in the event that their exposure to individual counterparties became excessive.
I may be proved wrong, but whilst the claim has been made that the contract is worth $20M per annum to NGF, the Administrators or Trustees in Bankruptcy will be entitled to see and treat that as an asset, an asset that they are not likely to relinquish quickly.
Note that the capital adequacy provisions also enabled banks to net off different forms of exposure against each other, I dont know what other Assets NGF may have with another Bank (i.e. what banks have liabilities to NGF as a result of other derivatives contracts) but that would typically be a course of exit for the Trustee or Administrator to follow.


I have been wrong before however......just dont tell my wife I told you!