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Florida Investments Affected By Collapse Of Lehman Brothers

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The Associated Press

Published: September 16, 2008

NEW YORK - Lehman Brothers, a 158-year-old investment bank choked by the credit crisis and falling real estate values, filed for Chapter 11 protection in the biggest bankruptcy court filing ever on Monday and said it was trying to sell off key business units.

The filing was made in the U.S. Bankruptcy Court in the Southern District of New York by Lehman Brothers Holdings Inc., the bank's holding company.

Lehman fell under the weight of $60 billion in soured real estate holdings, and the credit market's dislocation ultimately forced it to seek court protection. The credit crisis has caused global banks to write down more than $300 billion in asset value since last year, and caused the shotgun sales of Merrill Lynch & Co. and Bear Stearns Cos.

Chairman and Chief Executive Officer Richard S. Fuld, who joined Lehman as a college student in 1969 and was the longest-serving CEO on Wall Street, has the task of winding down the company's $639 billion in assets. It has about 25,000 employees worldwide, joining the swell of unemployed bankers and traders hurt by the credit crisis.

Lehman's bankruptcy filing is touching Florida's financial picture.

The State Board of Administration, which manages the state pension fund, hurricane catastrophe fund and several others, has a $407.7 million original investment stake in Lehman stock and bonds.

On Sept. 10, the last date the investment value was checked by state officials, that original investment stake had a market value of $322.9 million and $84.8 million in unrealized losses, or losses that haven't been fully recorded. Of the $407.7 million at risk, $338 million was in fixed income and the balance in equities.

State officials said it was not clear what the market value of those holdings was Monday after Lehman's Chapter 11 filing.

"Not knowing how this is going to settle out, we can't speculate yet on where exactly it will end up," said SBA spokesman Dennis McKee.

Of the state's Lehman holdings, $303 million is in the Florida Retirement System, with $237 million in fixed income and the balance in equities. An estimated $75 million of that represented unrealized loss on Sept. 10.

McKee noted Lehman holdings constitute less than 1 percent of the $125 billion Florida Retirement System, which has $6 billion in reserves.

"That's the benefit of diversity and long-term view," McKee said. "This is not the first weak market we've been through."

The pension's long-term health is expected to be discussed at today's state Cabinet meeting.

As of Sept. 10, the state's Hurricane Catastrophe Fund had $95 million in Lehman holdings, all of which was fixed income. "Certainly, you have to have some concern in terms of the general health of the financial markets," McKee said.

Although everyone should be concerned about the health of their retirement fund as a rule, McKee said, "I don't think anyone should be worrying about the individual daily movements of the market."

Monday afternoon, Alex Sink, Florida's chief financial officer, said the state treasury held $139.5 million in Lehman Brothers Holding bonds as of Sept. 12. That represented exposure of less than 0.6 percent of treasury investments. "We have positioned Florida's Treasury to meet the cash needs of investors and balance the obligations of the state," Sink said in a statement.

In Washington, the Securities and Exchange Commission said its examiners will remain at the offices of Lehman Brothers to oversee an "orderly transfer" of assets in retail customer accounts to one or more brokerage firms that are insured by the Securities Investor Protection Corp.

The SEC noted in a statement that Lehman's decision to file for bankruptcy protection does not affect the SIPC protection covering the firm's retail securities customers. The SEC also said it is coordinating with overseas regulators to protect Lehman's customers and to maintain orderly markets.

Tribune reporter Catherine Dolinski contributed to this report.

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