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- Опубликовано: 11 мар 2010
- Its the title of a dubious financing transaction that Lehman Brothers used in 2008 to make its balance sheet look healthier than it really was. Paddy Hirsch takes a stab at explaining how Repo 105 worked. #MarketplaceAPM #Repo105 #EconomicExplainers
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I'm totally loving these videos! They're explained in such an interesting and creative way, thanks Paddy!
The repo/loan for Lehman is debt. Using repo 105, Lehman essentially hid their debt. So others had no idea that Lehman had already borrowed too much.
Beautifully explained. Thank you so much sir!
Thank you so much, I'm studying this for my MBA Accounting and Financial Management subject at University of Adelaide. I love your explanations, good work and once again, thank you.
me too, classmate ;) good luck with your assignment
@@robocop4296 LOL it's been over wheeling, just referencing now still got til 11:59 tonight... 😇🤞🏻🤞🏻🤞🏻🤞🏻🤞🏻
Thanks heaps- great explanation the best I have seen so far.
Perfect explanation!!!! First time I understand it for good 😀
You made it very easy to understand..thank you so much for this video
Liked and subscribed! Love the teaching style, sir!
Excellent explanation! Thank you!
Thank you for your visual and simple explanation...I'm just an average Jane and I get it!
You saved my life lol I was trying to read the textbook and it seemed so confusing. Now I understand =D
Still confused how eliminating assets improves lehmans leverage profile. Maybe if the securities are labeled as liabilities and receives cash.
My guess is the fact that is a loan is accounted for as with a repo transaction, a liability is created.
Whereas if a sale is accounted for, no liability is created, hence improving leverage.
Further, the bank’s balance sheet can further be improved be ‘selling off’ bad quality assets in this way, is my guess.
thank you for these explanations !!
I enjoyed this video. Before, I didn't fully understand why Repo 105 could be booked a sale, instead of as a loan.
Thanks for the easy-to-understand explanation, sir.
Thanks for the easy-to-understand comment of appreciation.
Superb video
GREAT video
Its also called: accounting fraud. Same as Enron.
Thanks Paddy!!!
Solid explanation.
Good job sir
Another great video!
Curious, who was valuing the collateral at 105% of the repo? Were they subject to the mark to market rules? Just wondering if there was fraud in that step too [overstating the value of the collateral].
Is it better to have worthless assets or no assets at all?
Paddy, if you're not teaching at a university, you should consider doing so because your explanation style is superb. If universities don't pay well, start an investment banking training classes!
thanks great one!
@ Raffi, Yes that is true.. but value is also in perception. If people see something as having no value you cant sell it.
thanks! I guess the point is not 105 or 107 or anything then, it's about logging a loan as a sale so that the balance sheet looks cleaner.
for those about to balance your double-entry bookkeeping system, we salute you
The 98-102 cents on the dollar requirement seems incredibly arbitrary. Anyone know what the rationale was for this? What was FASB trying to accomplish?
I'm glad Tim was able to get his AC/DC records back from Sam to use for his next loan lol Thanks for these videos, they're very informative and interesting ;-)
Its Joe not Sam !! :o
Remember, these transactions were designed to provide a "snapshot" for financial statement purposes. There is no long term benefit to the transaction. You do the deal on December 29 and undo it at January 3.
Gud one !!! ian\m sure there must be other invest banks doing the same
If i understand it right they hid their debts, but in the video he says they hid their assets
Jajajajaja,,, you are good my friend... lovely explanation....
this does not make sense though, if the collateral is 105, how much Joe is lending to LB?
what does the 105 stand for ??
The 105 stands for the higher than normal value - 105 cents on dollar - placed on the collateral securities. THIS is the loophole that LB used to book the transactions as sales instead of loans.
I think Joe would still only lend 100 --- Joe is just extra happy to lend the 100 (in theory) because it got 105 in collateral. What i don't get is ... if LB lent 105 in repos, then what happened when it went bankrupt? Did the counterparties keep the collateral and end up profiting $5 from the $105?
To answer your question 12 years later, no. That collateral worth “105” was probably trading distressed and might have sold in the market at a significant discount in 2007-08. Book value (a snapshot of an asset) is different from market value (if I sold this today, what would it go for), which is exactly why Lehman went bankrupt.
Still $100 I think. As Paddy said, that's one of the reason LB did it, so that the counterparty would be in a good position and continue to do deals with LB.
Complicated terms explained in simple terms to a financial layman !
carrier do it right now to make its quater result look good, and it is very wide practice, for different reason.
So a repo is like a pawn shop for investment banker
Taking assets off the book/balance sheet of LB doesn't make it look any better from observer point of view as long as such assets are of good quality. The intention of LB for treating the transaction as sales is to hide it's liabilities on one hand and to minimize its tax liability on the other, and not to make asset disappear from its book as wrongly prescribed in this presentation. If the transactions were to be accounted for as borrowing, the financial statement of LB would show it's liability to the lender from whom it borrowed. LB don't want the public and analyst to see such liability because the lower the liabilities, the stronger the wealth of shareholders would appear . Hiding the liability made LB performance appears impressive. Hence LB accounted for the transaction as sales since no liability would be seen in it's books.
From taxation point of view, treating the transaction as sales of 105 worth of security for 100 proceed would show that LB is making a loss of 5. By implication such losses would minimize its income in the financial statement and therefore reduces its chargeable income tax. This tax aversion which is not illegal. What they did was to exploit the loopholes in accounting standard to provide the public with a misleading and unrealistic position. This is also not a crime, the accounting standard was to blame. LB was exploiting a means to maximizing it's wealth, unfortunately it went under
Your explanation makes me better understand how EY outlived this fiasco. If it was allowed in terms of the accounting rules, helped by the fact that the US has rules-based rather than principle based accounting rules, then one can see how EY could survive it.
Fortunately it went under. However *"Taking assets off the book/balance sheet of LB doesn't make it look any better from observer point of view as long as such assets are of good quality."*
Don't you mean as long as the assets were bad quality? It would be better if good quality assets remained while they discarded the bad quality.
Preparing for a Job interview at EY
How fitting, they were the auditors of LB.
Did you get the job?
Did you get it?
@@musak.4068 Yeah, it was an Internship though
@@CrowPlaysHD How was it?
@@musak.4068 it was ok. I did Audit first, which was not very inspirirng just checking of numbers. I had more fun in another EY internship in Valuation, however will likely look to go to an investment bank instead.
Thank you for the video.
The video seems to suggest that you can make a bank look better by having assets removed from the balance sheet, but fails to explain why that is.
It also fails to explain that if repos are accounted for as sales it is the ‘liability to repurchase (repay) the loan’ that is effectively removed from the balance sheet.
Other than that a very informative video. Thank you.
So basically it's the pawn shop for billion dollar corporations?
Please speak slowly. I enjoyed the video though. Thanks
I NOW KNOW WHAT TO INVEST IN AND HOW TO DO IT THANKS A MILLION BECAUSE I GET 52 DOLLARS A MONTH SO THIS WILL REALLY HELP ME AND MY GIRL.
Why is Dick Fuld (the Gorilla) from Lehman brother not in prison for the Repo 105 transactions during his tenure.
If a regular person goes to Kmart and steals a sneaker bar, that person goes to jail.