After a report by a US bankruptcy-court examiner investigating the collapse of Lehman Brothers (LEHMQ) revealed last night that the 158-year-old company had used complicated accounting tricks, known as Repo 105, to reduce its reliance on borrowed money and conceal its dependence on leverage that eventually led to its undoing, banks are beginning to deny any involvement in Repo 105s.
Goldman Sachs (GS) said Friday that it has never used a transaction similar to those used by Lehman known as repo 105s.
“Goldman Sachs has never used this transaction,” a spokesman for the investment bank said in an email to MarketWatch.
Repo 105s are accounting devices which refer to assets that are worth at least 105%. In Lehman’s case, the co did repo (short for repurchase agreements) deals to essentially park about $50 billion of assets away from its balance sheet.
What Lehman did is basically record its repo transactions as if they had been real sales of bonds ; this despite the fact that the company would repurchase those specific bonds just a few days after it had sold them. The move helped Lehman’s balance sheet look leaner as it reduced the amount of debt it showed to investors.
“In this way, unbeknownst to the investing public, rating agencies, Government regulators, and Lehman’s Board of Directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” the 2,200 page report by court-appointed examiner Anton Valukas said.
Judge James M. Peck of the U.S. Bankruptcy Court in Manhattan said the Valukas report on the causes for the Lehman bankruptcy reads like a ‘best seller’.