The collapse of Lehman: the day the banking world stood still
21 September 2009
The lawyers involved reflect on when the ‘unthinkable became thinkable’. By Margaret Taylor
Twelve months after the collapse of Lehman Brothers the repercussions are still being felt in the legal world.
A year ago lawyers across the globe were coming to terms with the fact that the world as they knew it had almost come to an end.
After an agonising weekend Lehman finally collapsed on 15 September 2008, followed in quick succession by the sales of Merrill Lynch, Wachovia and Washington Mutual, as well as the bailout of insurance giant AIG. In the weeks and months that followed RBS had to be rescued by the UK Government, Lloyds TSB’s takeover of HBOS was rushed through and Bradford & Bingley was broken up and part-nationalised.
It hardly seemed possible that a little more than a year before Northern Rock’s troubles had seemed like a big deal.
Clearly there was plenty of legal work to come out of the crisis, but the general feeling a year ago was one of disbelief and fear.
Linklaters partner Tony Bugg, who was acting for Lehman’s UK administrator Tony Lomas at PricewaterhouseCoopers (PwC), recalls how surreal it was when the bank’s fate was finally sealed.
“We had a meeting at 5.30am on Monday [15 September 2008] that went on until 7.30am,” he says. “A judge came in and we put Lehman into administration at 7.56am. It was clearly a very different kind of proceeding in the UK to the US. We were all sat in Meeting Room 207 in jeans, with a judge deciding the fate of Lehman. It felt very odd to be doing all of this at One Silk Street.”
For those working at Canary Wharf the enormity of the situation was all too visible, with streams of Lehman staff filing out of the bank’s building over the course of the day.
“Walking to work past Lehman’s offices early that morning, ranks of TV crews and journalists were already building up expecting drama - never a good sign,” says a Clifford Chance associate. “Like my colleagues, I spent most of Monday following developments on the news, but also seeing the human effects of the collapse from my window.
“Throughout the day bankers steadily drifted out, dodging journalists and the growing number of bystanders. Some were carrying boxes and leaving forever; some were giving up and heading to bars in Canary Wharf; others were just leaving the building to reflect, but were determined to carry on.
“In the days after the chatter in the City was about nothing else. But as the dust settled my thoughts were with the younger guys at Lehman, just starting their careers like me - how would we fare in the new post-Lehman world?”
Although Linklaters was one of the first firms to have direct involvement in the fallout from Lehman, lawyers on both sides of the Atlantic were panicking about what the day’s events would mean in the longer term.
“Lehman failing was never really contemplated by anyone seriously. Now the unthinkable had become thinkable,” says Allen & Overy US head Kevin O’Shea.
Ashurst corporate head Stephen Lloyd recalls visiting Lehman’s Canary Wharf offices days after the collapse, when the firm was instructed by the investment banking team that later joined Nomura.
“Arriving at Lehman’s swanky Docklands offices on the following Saturday, a colleague found himself unable to get into the building for the meetings,” says Lloyd. “He eventually had to call the mobile of the lead PwC liquidator, who personally descended 20 floors to let him in, as the security staff had been dismissed – but not before advising my colleague to bring his own coffee and snacks with him. The vending machines had all been switched off and the departing staff had emptied them as they left.”