Illustration: Derek Zheng

The Last of Lehman Brothers

The bank whose collapse marked the beginning of the 2008 financial crisis is only mostly dead. These are the people attending to its last remains ahead of its final court cases.

Daryl Rattigan arrived at Lehman Brothers 18 years ago for a three-month assignment from his law firm. Eventually the bank gave him a full-time job at its real estate finance arm in London.

Then the bank suddenly collapsed.

And he’s still there, almost 14 years later.

It turns out that when global financial institutions die, it can take a while. These deaths require caretakers. The spirit of a bank, even in life, is debt, and debts don’t settle easily into a grave. Most of the assets banks own are the debts of others: the mortgages, commercial loans, and IOUs payable to the bank. On the other side, of course, banks owe—to their bond- and note holders, counterparties in financial trades, and a long list of other creditors. Banks such as Lehman topple over when they suddenly can’t wring enough cash from their assets to meet their liabilities.

Coming soon: "The Last of Lehman," a documentary from Quicktake.

But even after the funeral, all the debts on both sides of the ledger are still there, and professionals are needed to sort out who has to pay up and who should be paid—professionals such as Rattigan, who’s spent years working to eke out value from property assets the bank held when it went under. On the morning of Sept. 15, 2008, in the hours after his employer filed for bankruptcy, Rattigan had no idea if he still had a job. He came into the office in London’s Canary Wharf, unsure of whether the doors would even be unlocked, to at least get his Rolodex. “In the back of your mind, you are also aware that there’s sometimes scope for people to be retained and help” with the cleanup, Rattigan says. “But if I was going to be retained, I had to get back in there and get my face shown.”

Daryl Rattigan
Daryl Rattigan Photographer: Carlotta Cardana for Bloomberg Businessweek

He got his wish. PricewaterhouseCoopers accountants, who had been brought in to pick up the pieces of Lehman’s UK arm, needed to tap a few people who knew where the documents were, where the value was, and how best to maintain it. Years after almost all of Lehman’s 5,000-strong London workforce has moved on—the line in their résumés becoming a talking point at job interviews—Rattigan is still making a living from the bank whose fall ushered in the greatest financial crisis since the Great Depression.

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Like many people these past couple of years, Rattigan has spent long periods working from home. He had to push aside the clutter in his spare room and stick in a small desk to continue his work throughout the pandemic. For a while before the lockdowns, he used a serviced office space in Mayfair. It’s a posh neighborhood, “not somewhere you automatically assume a bust bank would go,” he says. But he says the accommodation was “far from luxurious.” In any case, he’s outlasted even that lease.

The scant corporeal remnants of Lehman—a few office spaces, some legal addresses—are scattered around the globe. There’s a holding company in New York that’s different from the European one Rattigan works for. The husk of that operation sits on the eighth floor of an elegant old building that once housed the uptown branch of the Bowery Savings Bank, before it became a fancy Cipriani catering hall. Lehman shares a floor with a health education company and a software startup.

Two court cases, one in London and the other in New York, are probably the last substantial issues that need to be resolved. They could linger for several more years, depending on appeals. But before the last contract is signed and the last rented office key is turned in, somebody might want to foot the bill for a goodbye cake and prosecco for Rattigan and others in a loose network of lawyers, accountants, consultants, and money managers. They’ve performed one of the weirdest jobs in finance: laying Lehman Brothers, finally, to rest.

Leaving Lehman Brothers’ New York headquarters on Monday, Sept. 15, 2008, the day the company filed for bankruptcy. David Goldman/The New York Times/Redux
Workers remove boxes from Lehman’s NYC headquarters on Sept. 15, 2008. Brian Zak/Sipa USA
Christie’s employees with a Lehman Brothers sign in London in 2010.
Christie’s employees with a Lehman Brothers sign in London in 2010. Andrew Winning/Reuters
Lehman Brothers employees outside the bank’s Canary Wharf headquarters in London on Sept. 15, 2008.
Lehman employees outside the bank’s Canary Wharf headquarters in London on Sept. 15, 2008. Shutterstock

The story of Lehman is a tragedy for the homeowners caught up in the risky mortgages the bank bet on and for the millions who lost jobs and economic opportunities in the grinding crisis that followed. But for a select group of people, the saga became the defining, even positive, turn in their careers.

There’s the federal judge who oversaw the collapse, for example. James Peck was a relative rookie on the bankruptcy bench when Lehman went under. Deep into the wee hours a few nights later, in front of an overflowing courtroom, he approved the hasty sale of the bank’s brokerage unit to Barclays Plc for $1.75 billion. That deal ensured the orderly transfer of hundreds of thousands of customer accounts, saved about 10,000 jobs on Wall Street, and possibly prevented the global financial system from spiraling further out of control. Peck, now 76, has since traveled the globe speaking about the case.

“I probably think about it a little bit every day,” he says. He’s now head of cross-border restructuring at the giant Morrison Foerster law firm, which charmingly goes by the nickname MoFo. He does a lot of mediation work, and a party to one of those workouts gave him a silver, Lehman-branded baby rattle. “I learned a tremendous amount and met wonderfully interesting people all over the planet,” Peck says, “many of whom are still my friends.”

For others, the winding down of Lehman wasn’t merely an intellectual adventure; it was lucrative, too. There were investors who ran not away from, but toward, the record-breaking dumpster fire of debt. They bought heavily discounted Lehman bonds and notes—and ground out the analysis to ensure that in the end they’d get paid back at a profit. Scott Hartman was one of those. He joined Värde Partners of Minneapolis as a senior analyst a couple of weeks before Lehman went bust and spent much of the next five years working on the case. He’s a partner now.

Lehman Brothers headquarters in New York on Sept. 16, 2008.
Lehman Brothers headquarters in New York on Sept. 16, 2008. Photographer: Kevin Coombs/Reuters

“Lehman is the largest bankruptcy filing ever. Because of that, it offered the biggest investment opportunity of nearly any company we could look at,” he says. A specialist in so-called distressed investments, Värde was interested in Lehman from the moment it all fell apart. “It’s a long time working on one thing,” Hartman says. “There’s probably some element of fatigue, but I’ll look back on this fondly.”

And then there are the lawyers. So many lawyers. Holders of Lehman debts don’t just wait around to get paid; they often have to fight in court over their claims. At the beginning of one trial last year, Lord Justice Kim Lewison of the UK’s Court of Appeal remarked that he had expected, after years of Lehman-related cases being heard at almost every level of Britain’s legal system, that all the questions around insolvency would have already been answered. “My Lord,” replied Mark Phillips, a lawyer who’s worked on bust companies for more than three decades. “If every question on insolvency had been answered, it would be a very sorry day.”

Lehman’s long death, which is now on its fourth US presidential administration, began the moment its lawyers filed a petition for Chapter 11 protection. Chapter 11 is designed to allow businesses that can’t pay their debts breathing room to figure out what to do next. Sometimes the process is straightforward. When, say, a chain of clothing stores goes under, the work to be done is clear: You tally the value of inventory, sell it off, and then give that money to whomever the retailer is indebted to. Maybe the whole business can be sold in one shot, making things even easier.

When a global bank fails, the process gets gnarly in a hurry. Instead of shirts and shoes, the assets to be tallied are abstractions. What’s a crummy mortgage worth during a housing crisis? Very little. But how little, specifically? And won’t that be offset by the insurance purchased on the mortgage? Well, not exactly that mortgage, of course, because these insurance contracts are bets on a basket of mortgages designed to mirror the ones the bank owns. What can Lehman get for those?

What made Lehman especially odd was its pile of good assets. It had plenty of terrible stuff but wasn’t alone in that. Almost every major investment bank at the time had a high-risk model such as Lehman’s. (And many survived only after a huge intervention by the government.) In the 2,000-page court-commissioned report on its demise, Examiner Anton Valukas pinned the failure not only on junky loans, but also on the loss of faith from Lehman’s business partners, including other lenders. The bank had relied too heavily on their confidence, like a poker pro getting staked by other gamblers. When it disappeared, it was all over for Lehman as a going enterprise. But that didn’t make all its assets worthless.

Likewise, there were countless knotty questions about who gets the money recovered from those assets. Say there were Lehman investors demanding repayment, but their debts were pegged to the bank’s Netherlands unit. Did the parent company have to cover the debts of the Netherlands unit? Even though the bank was deceased, the stakes of decisions such as these could be enormous for its living caretakers. If PricewaterhouseCoopers paid out, say, $100 million to the wrong bondholder, and the court decided that some other creditor deserved the money first, the cost was on administrators’ heads.

Lehman owed $613 billion when it went under. That’s a lot of angry, anxious creditors. There were also its customers. In addition to lending and borrowing, banks and brokerages hold on to a lot of other people’s stuff, such as their stocks and bonds in different companies, so another complex job was to pick through those and get them into safe hands at other firms. One member of the team of lawyers and accountants assigned to the cleanup remembers a client approaching him in Lehman’s London office tower right after the collapse. This client had somehow evaded security, demanding to know where his bonds were, brandishing his certificate as proof of what he owned.

How a
Waterfall Works

When creditors are repaid, cash pours down
like bubbly on stacked glasses.
Others hold subordinated paper and are entitled only to what spills over.
At the bottom of a credit structure, some investors may get nothing.


Holders of senior and secured debt are the most likely to get their fill.


Others hold subordinated paper and are entitled only to what spills over.


At the bottom of a credit structure, some investors may get nothing.

About that same time, on the seventh floor, there was a run on the on-site snack shop. Staffers were panic-buying fruit and chocolate bars, afraid that the payment cards they loaded with cash would become worthless. Some returned to their desk with arms full of bananas. It was a microcosm of what Lehman’s administrators would be doing for the next 14 years: answering questions from people who had claims on Lehman—not lunch cards, but bonds—and then deciding how many bananas they could give them.

There are people who get into running troubled businesses on purpose. “Professional services” companies such as Alvarez & Marsal, based in New York, sometimes act a bit like temp agencies, providing C-suite executives and expertise to companies that have gone bankrupt or are trying to turn themselves around. The day after Lehman failed, A&M’s Daniel Ehrmann was working as the interim chief financial officer of Spiegel Brands, an ailing purveyor of women’s clothing that was still fighting a losing battle against the emergence of online competitors. Bryan Marsal, co-founder of A&M, called him in the middle of a meeting: Get to Lehman’s New York office by 2 p.m.

Ehrmann then spent six years helping untangle Lehman’s wreckage from New York. He became the co-head of derivatives and head of international at Lehman Brothers Holdings Inc. “When I lie on my deathbed, I definitely will think about Lehman,” Ehrmann says. “Not only, I hope—but it was six fascinating years of my life, right?” The new, post-bankruptcy US arm of Lehman—essentially a portfolio manager and sales lot for used financial assets—would have a few hundred employees for a while. There are only 20 left in the US now.

Ehrmann and his counterparts in Europe and Asia faced a conundrum. They could sell all the stuff that Lehman owned quickly, but that would likely mean accepting deep-discount prices, leaving a small pot of money to distribute to creditors. That’s another way a bank failure is different from a normal bankruptcy. Physical assets can go bad quickly. Bananas rot; dresses and suits go out of fashion. Financial assets caught up in a panic may actually improve with time, as those handling the wind-down sort through the mess and scrape out value.

“What the US proceeding did on Day 1 was say, ‘We’re going to preserve the assets. We’re not going to fire-sale these assets today,’ ” says Ehrmann. “If we fire-sale them, we’re going to get cents on the dollar.” Instead they decided to wait for the crisis to end and work on the assets, even if the process took years. The strategy worked. In the UK, for example, Rattigan says he eventually managed to sell a clutch of commercial real estate loans valued at £50 million ($62 million) in the heat of the crisis for more than three times that amount.

Many hedge funds made a similar bet. In a major bankruptcy, a company’s original bond- and note-holders often try to cut their losses quickly. The typical mutual fund manager isn’t in the business of hiring restructuring advisers and wading through the bankruptcy court morass and then, years later, getting some of the fund’s money back. Those investors do exactly the thing Ehrmann says he was avoiding: They sell their bonds—that is, their claims on the money Lehman owed them—to someone else at a cheap price. In short, they take their lumps and move on. The buyers are usually specialized distressed-asset investors such as Värde who are willing to wait and to haggle.

illustration of auction
Illustration: Derek Zheng

Värde, which means “value” in Swedish, manages more than $13 billion and is typical of the type of investor that looks for these deals. Some call distressed-asset funds vultures. Hartman, the money manager, bristles at the idea that he’s in any way feasting on a carcass. “I personally have never understood the vulture reference,” he says. “No one is forced to sell or buy anything. That is their choice.” (Ehrmann, for his part, in 2015 joined King Street, another hedge fund that was a big player in Lehman’s discounted debt.)

Whatever they’re called, after years of analysis, court fights, and late nights, the funds that bought Lehman securities have done well. “For distressed investors, this is what you live for,” Hartman says. For example, one group of investors, including the hedge funds Paulson & Co. and Fir Tree Partners, bought loads of Lehman debt for about 20¢ on the dollar, according to court records. At that price, a $10 million bet on the debts eventually paid out more than $20 million, based on distribution data filed with the bankruptcy court, with much of the recovery coming in the first few years. It’s hard to get a complete picture of how much has been recouped across the divided Lehman empire, but one important slice of the parent company’s creditors has recovered close to half of what was owed, for a total of almost $40 billion, and twice what was originally forecast. A UK judge in 2019 noted some European debt holders had ultimately earned interest of 8% a year over a decade.

Share of Outstanding Lehman Brothers Debts Repaid

Values show cumulative recovery for senior unsecured creditors of Lehman Brothers Holdings Inc. Source: Bloomberg analysis of distribution notices

Other creditors may fare even better. One of the most stark examples is the so-called Ecaps trade. The Ecaps were notes Lehman issued that paid investors an attractive yield but came with a catch: They were very low down on what’s known in the bankruptcy trade as the “waterfall.” When a company can’t pay its bills, who gets what is determined by how high they’re positioned as money flows downward. Imagine a pyramid of Champagne glasses, with a waiter pouring from a bottle at the top. The senior creditors, who own the glasses at the peak, get their cash first, and then excess spills to glasses beneath them, layer by layer. If there’s a lot of cash gushing down, everyone gets some. But if it’s a trickle, holders of those Ecaps and other notes might get nothing.

One of the main differences between Lehman’s UK arm and most other insolvencies is that Rattigan and his colleagues wrung out much more money than expected. That outcome made the fights among creditors about where they stood in a waterfall all the more important and fiercely contested. It isn’t unusual for trials to decide who should be paid and in what order in big insolvencies, but with Lehman there were three waterfall cases in the UK alone. Many of the most experienced and expensive lawyers in London have represented hedge funds, Lehman’s US holding company, and even the government tax authorities, all arguing they were entitled to the last remnants of Lehman’s wealth.

Jackie Dolby
Jackie Dolby Photographer: Carlotta Cardana for Bloomberg Businessweek

A UK Court of Appeal judge ruled that the Ecaps bucket deserved to go higher up the waterfall. In the years after Lehman’s collapse, some Ecaps notes were considered so valueless that they were given away, according to trading certificates seen by Bloomberg. Now it’s possible that if things go well for holders—and that’s a big if—the notes could be paid in full. For the few who bought early and sat tight, a free scrap of paper might yield millions of dollars.

Even in the sometimes extremely lucrative business of buying bruised debts, the Ecaps trade is considered remarkable. Robert Southey, a broker who’s traded Lehman’s debts, estimates that some traders could have gotten 40 times their money back. “It’s super unusual that something that’s considered zero within the whole structure recovers anything,” he says. That’s bondspeak for “wow.”

Other oddities emerged from various nooks and crannies of the Lehman estate. In the Netherlands, enterprising investors found billions of dollars of bonds that the bank had tailored to buyers who wanted to make bets on other markets. Notes had been linked to the performance of Asian stocks, or the price of gold. You could buy these in bulk and make money.

One of the last open items in the entire case is a wonky court fight over bond insurance. For a decade, Lehman’s London subsidiary has been clashing with Assured Guaranty Ltd., which had provided it with a kind of insurance against default on bundles of subprime mortgage bonds. Put simply, Lehman is trying to cash in on the very securities that helped fuel its demise. Lehman contends that its creditors are owed about $500 million; Assured says that according to its math, Lehman actually owes it money as a “termination” fee.

There are easier, if more modest, ways to scrape up money from Lehman’s death. An active market exists for old Lehman merchandise, such as branded duffel bags, polo shirts, and even pens. One retired handyman from New York bought a “truckload” of Lehman leftovers—some were still in transit from China—for $5,000 in the wake of the bank’s collapse. He’s been hawking them on EBay ever since, sparking bidding wars over branded hip bags. “I bought it all on a hunch thinking people would want a piece of history,” says the seller, who identified himself in an email to Bloomberg Businessweek as Ric Cam. “Let’s say I made my investment back.”

Old Lehman swag on EBay.
Old Lehman swag on EBay. Source: EBay

After death, the other inevitability is taxes, and some of the last people out the door will very probably be those handling Lehman’s tax affairs. Jackie Dolby joined the bank in London in 1989, balancing her job with studying for her accountancy exams at night school. By the time the firm collapsed, she had become head of European corporate tax and planning. Few know the plumbing of Lehman’s European outpost as well as Dolby: She was a witness in one of the Ecaps cases, having worked on the minutiae of Lehman’s UK debt. For the administrator at PwC, her knowledge is like gold dust. She works two days a week, sometimes more, mostly from her home on England’s east coast. After the insolvency, when banking became a dirty word in the popular imagination, she was a little embarrassed to say she worked at Lehman.

Now Dolby feels a certain pride for sticking around this long. Even after all the money is paid out from Lehman’s UK entity, she will still have to do its taxes in the year after, a final benediction to close out affairs with the ultimate financial authorities. “When we went into insolvency,” Dolby says, “the PwC people said, ‘You will be there to turn the lights off.’ ”

illustration of man with a box in a doorway
Illustration: Derek Zheng

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