As one might expect from the company that suffered the biggest U.S. bankruptcy ever, Lehman Brothers conducted less-than optimal oversight of its businesses. Our suspicions to that effect were confirmed today at a U.S. Bankruptcy Court proceeding in Manhattan. Barclays futures director Elizabeth James, who was involved when Barclays bought Lehman out of bankruptcy in September 2008, said, “Lehman’s books were such a mess that I don’t think they knew where they were.”
It’s unclear from that quote whether James was referring to the literal location of Lehman’s actual books. But let’s assume she was speaking figuratively, about the firm’s positions in the derivatives market, as her subsequent remarks suggest.
She said she received an e-mail from former Barclays trading executive Stephen King saying Lehman had “absolutely no idea” if it had sold $2 billion more options than it had bought, or whether it owned $4 billion more than it had sold.
Not exactly a ringing endorsement of a company’s organizational prowess. But it gets worse. James said she couldn’t do due diligence on Lehman thanks to its lack of records, and things were so bad that Barclays wound up buying entire positions that it hadn’t known about just as it was about to ink the deal.