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Lehman Brothers sues Swedish state-owned company for half a billion

Friday, 25 May 2012
The Swiss branch of the bankrupt Lehman Brothers has sued Swedish state finance company Swedish Export Credit Corporation, SEK, for just over half a billion dollars.

Lehman Brothers believes that SEK has not paid its debts in full and that it also used too low a rate.
The dispute arose in the middle of the burning global financial crisis on 15 September 2008. It was on this historic day that Lehman Brothers filed for bankruptcy protection and the SEK quickly phased out its portfolio of derivatives transactions with Lehman Brothers.
Derivatives were in SEC's case, Securities designed to protect ("hedged") SEK's assets and also to minimize market risk.

When the SEK discontinued its portfolio management, both parties agree that the SEK owed Lehman money, but disagree on how much is owed.

The dispute concerns the 63 derivatives that were dismissed just on the 15 September 2008. SEK concluded that the value would be based on the price one had to pay for investment in derivatives of another firm. Lehman Brothers believes that they should have had much more money, $ 27 million, equivalent to just over Skr 190 million, according to a valuation model that is made by an outside expert. Instead SEK was paying a lower amount three years later including that last fall. The interest rate amount which SEK paid - up was significantly lower than that Lehman Brothers considers being valid. The total interest expense amounted to $ 20 million, thus corresponding to more than Skr140 million, writes Lehman Brothers in its lawsuit.

Another requirement is that Lehman Brothers paid the SEK $10 million just before the fateful day, September 15. It is, according to Lehman Brothers, "an amount that SEK has no right to retain, yet has refused to repay" they write.

According to the lawsuit, SEK previously stated that it believed it had the right to offset the $10 million against a claim that SEK had with Lehman Brothers affiliate, when it was declared bankrupt. In total Lehman Brothers bankruptcy estate demands $73.9 million, equivalent to just under Skr530 million, including an interest rate based on the U.S. policy rate plus 15.4 percent. In addition, the aim is for SEK to pay the legal costs and expenses.
SEK has asked to defer its response until 31 August.

The SEK’s interim report, published on April 26, has a note telling about the mood of the Lehman Brothers bankruptcy. But nowhere in the text did it mentions the huge amount Lehman Brothers believes that the SEK should pay.

"SEK disagrees with Lehman Brothers and intends to vigorously defend its position in accordance with accounting reports. SEK's view is that no significant losses will be incurred related to the Lehman Brothers bankruptcy.

SEK's offsetting and damages have not been settled, and no assurance can be given that SEC will be compensated in full. Nor can any assurance of the outcome of the group's dispute with Lehman Brothers ” according to the notes.

No amount was mentioned in the press release SEK posted on its website the day after the lawsuit had reached the Stockholm District Court.
The chief executive Peter Yngwe wrote that "SEK's assessment is that no significant losses will be incurred related to the Lehman Brothers bankruptcy, including the current lawsuit. We have over history been profitable and compensated for credit losses, due to our conservative business model. We have used Lehman Brothers, in the same manner as we used other banks, to cover the risks and thereby reduce our risk exposures."
By Team 

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