341 creditors meeting transcript

TSG Reporting - Worldwide (877) 702-9580

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2 UNITED STATES BANKRUPTCY COURT3 SOUTHERN DISTRICT OF NEW YORK4

5 IN RE: )

)6 LEHMAN BROTHERS HOLDINGS, ) Chapter 11 Case

INC., et al. ) Case No. 08-13555 (JMP)7 ) (Jointly Administered)

Debtors. )8 -----------------------------)9

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12 341 MEETING OF CREDITORS13 New York, New York14 Wednesday, July 8, 200915

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22 Reported by:23 KRISTIN KOCH, RPR, RMR, CRR, CLR24 JOB NO. 2360025


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3 July 8, 2009

4 10:11 a.m.

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7 341 Meeting of Creditors, held at

8 the Hilton Hotel, 1335 Avenue of the

9 Americas, New York, New York, before

10 Kristin Koch, a Registered Professional

11 Reporter, Registered Merit Reporter,

12 Certified Realtime Reporter, Certified

13 Livenote Reporter and Notary Public of the

14 State of New York.

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2 A P P E A R A N C E S:

3

4 UNITED STATES DEPARTMENT OF JUSTICE

5 OFFICE OF THE UNITED STATES TRUSTEE

6 33 Whitehall Street

7 New York, New York 10004

8 BY: ANDREW D. VELEZ-RIVERA, ESQ.

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10 WEIL, GOTSHAL & MANGES, LLP

11 Attorneys for Debtors

12 767 Fifth Avenue

13 New York, New York 10153

14 BY: AMANDA HENDY, ESQ.

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16 PANEL MEMBERS:

17 DANIEL EHRMANN

18 BRYAN MARSAL

19 JOHN SUCKOW

20 LORI FIFE

21 SHAI WAISMAN

22 WILLIAM FOX

23 JACK D. McCARTHY, JR.

24 JEFF FITTS

25 DOUGLAS LAMBERT


1

2 MR. VELEZ-RIVERA: Ladies and

3 gentlemen, good morning. I am Andy

4 Velez-Rivera. I am with the office of the

5 United States Trustee here in the Southern

6 District of New York. This is the joint

7 meeting of creditors in the bankruptcy

8 cases of Lehman Brothers Holdings, Inc. and

9 its related Chapter 11 debtors in

10 possession.

11 Under an order of the court these

12 cases are jointly administered and the lead

13 case is Lehman Brothers Holdings,

14 bankruptcy case number 08-13555 (JMP).

15 We appreciate that you all are here.

16 If you haven't signed in outside when you

17 came in, please do so as you exit the

18 facility.

19 I will be presiding over the Chapter

20 11 meeting of creditors this morning on

21 behalf of my client, Diana Adams, the

22 United States Trustee.

23 This is a continued meeting of

24 creditors. Several of you were here back

25 on January 29th when the initial meeting


1 341 Creditors Meeting

2 was held in these cases and the protocol

3 and the recordation of the meeting will

4 happen in much the same way.

5 There is a court reporter present

6 who will transcribe the meeting and her

7 transcription will be the official record

8 of the case. You can contact her directly

9 or my office if you would like a

10 transcript.

11 The press is welcome to attend

12 because this is an open meeting, however,

13 no press people will be allowed to ask any

14 questions. No video recording of any type

15 will be allowed. No audio recording of any

16 type. No photography, and that includes

17 photos by cell phones. Note taking is just

18 fine, but as I mentioned, you can get the

19 transcript from the reporter.

20 I'd like to introduce some of the

21 people on the podium.

22 The gentleman who is second from the

23 last is Mr. Shai Waisman. I will ask him

24 introduce everybody else.

25 MR. WAISMAN: (Inaudible.)



2 MR. VELEZ-RIVERA: Okay, we will do

3 that.

4 We will begin with the presentation

5 by Mr. Marsal and then at the conclusion of

6 that he will entertain questions from the

7 audience. At that point only creditors

8 will be permitted to ask questions.

9 All right. Oh, one other word.

10 Mr. Marsal's presentation, as he makes his

11 way up here, what you see on screen has

12 already been filed this morning, I am told,

13 in an 8-K filing and it is also available

14 on their website.

15 MR. MARSAL: Good morning. In

16 January we had a full room and I must tell

17 you I did not expect to get a full room

18 today, but we will do our best to update

19 you on where we are in the matter of Lehman

20 Brothers Holdings.

21 In terms of the current situation at

22 Lehman, over the last -- since we last met

23 in late January there has been steady

24 progress on asset management, claims

25 management, financial reporting and the



2 litigation aspects of this case. Our

3 liquidity continues to build. The

4 (inaudible) thing is that we are only

5 permitted to put that liquidity into

6 permitted investments and, as you know, the

7 permitted investments are investing in

8 government guaranteed obligations, short

9 term. There is a very poor return.

10 Despite that fact you will see we have

11 $12 billion in cash today.

12 Reporting, our 12-31-08 balance

13 sheet will be available in early to mid

14 August. That will provide a lot of answers

15 to questions on valuation, what we think

16 the illiquid assets are currently valued

17 at.

18 And last but not least, our

19 financial situation continues to improve

20 (inaudible) the 12-31-08 numbers. We will

21 get more -- we are on an accelerated basis

22 to get more current numbers. We are

23 running the first and second quarter

24 numbers as quickly as we possibly can.

25 In terms of claims management, as



2 you know, there is a Bar date on September

3 22nd. We are sorting through all the

4 intercompany -- many of the intercompany

5 guaranty issues. This is very complex and

6 is going to take a significant amount of

7 time. Keep in mind that it's our objective

8 that this Bar date is to really put a stake

9 in the ground and try to get a handle on

10 what the claims are to force people to help

11 us analyze and to develop that history.

12 There has been a tremendous amount of

13 concern, particularly in Europe, and

14 confusion surrounding this Bar date. We

15 are going to work with all bondholders to

16 do what's right by them. And so having

17 said that, we are sympathetic that this is

18 a bit confusing, this process between the

19 guarantees that have been provided by

20 Holdings and the direct loans that have

21 been made to subsidiaries of Lehman.

22 On the litigation front, there is

23 significant litigation in progress. As you

24 know, we have a matter under way with Bank

25 of America and we have a discovery request



2 that has been made and granted by the court

3 under the Barclay's matter. We also have a

4 number of other issues which are in the

5 process of being developed and pursued. I

6 am not at liberty to really talk about

7 them, but in the coming weeks it will start

8 to become clearer as to what those

9 litigations will be.

10 Last but not least, we have a

11 significant amount of preference and

12 fraudulent conveyance issues that need to

13 be addressed and business work stream has

14 been developed to address that and we will

15 be assigning legal responsibility to that

16 work stream shortly.

17 On the personnel front, I thought it

18 was valuable to show you where we are

19 today. The Lehman estate consists of 2,405

20 head count. Most of the head count, if you

21 look down the vertical axis, you will see

22 the various departments and functional

23 areas. Most of the head count, if you go

24 down to the fourth from the bottom, you

25 will see is at the bank platforms, the



2 Aurora bank platform and the Utah bank,

3 where we have 1,759 head count. If we go

4 back up -- excuse me. The LBB is strictly

5 Aurora. Below that is the Utah Bank where

6 we have 20 head count. So you see that the

7 estate really consists of the 428 of asset

8 teams and 164 of administrative teams in

9 terms of Lehman personnel.

10 In terms of A&M personnel, of the

11 175 FTEs working from A&M, we have a

12 hundred which are involved in

13 administrative matters, we have 69 which

14 are directly involved in asset matters,

15 with six being involved with the bank

16 platforms. So to look at it a different

17 way, the administration of this case has

18 required about a hundred of Alvarez &

19 Marsal FTEs.

20 Let's look at of the 175, let's look

21 at what they are doing. On the finance,

22 treasury and tax front, it's clear they are

23 trying to get the books and records out,

24 trying to get them straightened and trying

25 to deal with many of the tax issues and to



2 deal with the cash management of a

3 liquidating situation.

4 Next category, IT wind-down, we were

5 left with a challenge when Barclay's took

6 over the technology of Lehman. Barclay's

7 agreement permits us two years to depend on

8 Barclay's system, at which point they can

9 cut us off of that IT system, so we have

10 been in a rush to get our own stand-alone

11 IT system up so we can track these assets

12 into the future.

13 This is a very project-oriented

14 group and the job should be largely done by

15 the end of this calendar year into the

16 first quarter of 2010. It's our objective

17 to be independent of Barclay's by the end

18 of the first quarter certainly.

19 Next category, which is claims

20 management, CMS, data and forensic, the

21 head count here is really focusing on three

22 major activities. One is the forensic

23 activities to support the litigations that

24 are under way. The other is to support the

25 data requests both of the examiner and the



2 other receivers and of our own organization

3 and trying to reconstruct some of the

4 activities that occurred prior to the

5 filing.

6 Looking at the asset teams, what you

7 see there is you see a relationship of it's

8 really one Alvarez & Marsal person to every

9 seven legacy Lehman people. We believe

10 that that is -- the mix varies, but as you

11 see the bulk of the people on this case in

12 terms of legacy Lehman are the asset teams,

13 the bulk of the A&M people are in the

14 administrative teams.

15 In terms of key responsibilities for

16 A&M, we went over this back in January, but

17 we will do it again. The first

18 responsibility is maximize the recovery

19 value of the assets. There are five asset

20 teams in place. Each of those teams, the

21 tasks are defined and the plans are being

22 executed as opposed to before when plans

23 were being developed. We pretty much know

24 what we have to do in each of those asset

25 categories and people are doing it. It's



2 actually working quite well.

3 The second key objective, which is

4 to mitigate potential liability and

5 reconcile claims, the key open issues there

6 is resolving the derivative claim

7 termination values, the unfunded

8 commitments, getting out of those unfunded

9 commitments both in terms of the bank, the

10 bank book, as well as the private equity

11 unfunded limited partner responsibility,

12 the GP responsibility, and sort through all

13 the parent guarantees that we have for all

14 the various Lehman subsidiaries, as well as

15 to sort out from the clearing bank

16 standpoint what happened with our various

17 clearing banks. We have identified various

18 claims against us which we are now

19 investigating.

20 The third key objective was to meet

21 the needs of the court, the U.S. Trustee

22 and the Unsecured Creditors Committee to

23 attempt to timely reporting, transparency,

24 and cost effective administration of the

25 case. I am pretty proud of what we have



2 done to date. I think we have moved that

3 up at a pretty good pace given the

4 complexity of this case. What I would say

5 to you is just in the case of Alvarez &

6 Marsal, we have over twenty teams, which a

7 team would be the equivalent of which would

8 work on one case normally, so this is

9 twenty times the normal A&M size case.

10 In terms of asset reports, the first

11 key asset to talk about is the bank

12 platforms. There is really no surprise

13 here. On the bank asset front things are

14 stabilized. Asset values are becoming --

15 we have written it down to levels that we

16 feel very comfortable with. The concern we

17 have on the bank platforms is with all the

18 reforms going on in Washington, things are

19 a bit confusing right now. The FDIC has

20 sort of changed the rules of the game in

21 terms of their willingness to permit us to

22 open up broker CDs again and the office of

23 the Thrift has really been merged into the

24 control of the currency, so there is lots

25 of confusion on that regulatory front.



2 The bank book, we have unfunded

3 commitment obligations continue to be

4 eliminated. As we will discuss later,

5 there has been a stampede to clean up the

6 unfunded revolvers and we have (inaudible)

7 of $3.8 billion in the pipeline, so we are

8 going to be making some major headway in

9 the next 60 days on cleaning up the

10 unfunded liabilities. It's going very

11 well.

12 The value of the portfolio, it's

13 stabilized. The portfolio actually has

14 increased in value over the last three

15 months.

16 In terms of the principal

17 investments and private equity, our focus

18 was on the stabilization and to spin out

19 those funds (inaudible) general partner

20 with a significant unfunded liability or

21 unfunded responsibility. To the extent

22 that we do not meet that responsibility, as

23 you know, it jeopardizes the value of our

24 LP interest, any residual LB interest we

25 had, so we have been undertaking to try and



2 put the general partner interest in the

3 hands of others. We held an auction and we

4 had over a hundred potential interested

5 parties. At the same time as the general

6 partner we felt it our primary

7 responsibility given the fact we only owned

8 14 or 16 percent of the fund, the other

9 86 percent of the fund was owned by LPs, we

10 felt our responsibility was first to those

11 LPs to find out who they wanted to manage

12 the fund, and the LPs overwhelmingly voted

13 for the former management of Lehman to run

14 that fund, and that management team, the

15 private equity management team will proceed

16 on as the general partner replacing Lehman.

17 In terms of the real estate assets,

18 again, I put in there Canyon Ranch, Miami.

19 This is a situation where we actually went

20 on the offensive. We weren't purely a

21 lender, but, in fact, we were an equity

22 holder. We went on the offensive. We

23 cleaned up the mezz. We got rid of the --

24 cleaned up the equity, cleaned up the mezz,

25 permitting us to really operate legally and



2 financially as owner, and then we took

3 actions to try and clean up and move the

4 280 unsold units. That move has been very

5 positive. The board has supported our

6 moves and I think that the results to date

7 support that action.

8 Fundamentally, real estate, we are

9 shifting from being a portfolio manager who

10 is waiting for a better market to an asset

11 manager that is working the assets and we

12 will get to a better market, but we

13 recognize that as an asset manager we are

14 very much in competition with others who

15 are trying to take our value and put it

16 into their building or their piece of

17 property. So we have gone on the

18 offensive. I would say in the last three

19 months we have been very much more an asset

20 manager than a portfolio manager.

21 On the derivative front, as you will

22 see, we have collected close to $6 billion,

23 implementing hedging strategies and various

24 other strategies of assignment which I

25 think are actually maybe making law or



2 precedent right now, so it's an interesting

3 time for us in the derivatives world.

4 On the international front, we have

5 the Lavender portfolio, which is a

6 portfolio of loans, real estate loans in

7 Japan. We went in with that looking at a

8 mid teens kind of recovery. We took a

9 proactive role along with the help of the

10 receiver in Hong Kong and we have actually

11 presented a credit bid concept to the

12 Japanese, which was somewhat unique. The

13 result of that credit bid concept was we

14 got the recovery in excess of mid 40s up

15 from the 14, 15 percent recovery range that

16 had been forecasted. So by putting a

17 stalking horse in there ourselves, we were

18 able to get an honest bid out of the

19 marketplace.

20 We are in discussions on Bankhaus,

21 which is a major subsidiary and creditor of

22 ours, on trying to settle out of some of

23 the asset issues that we have with them.

24 On the intercompany side we still

25 have a limited understanding of LBI



2 activities. The LBI and LBIE, they really

3 provide -- LBIE is the European, the U.K.

4 receiver. LBI is the SIPA receiver. And

5 we really have minimum transparency with

6 what is going on in those estates. Given

7 the fact that we are probably the largest

8 creditor, it's a little frustrating not

9 knowing what's happening in those estates,

10 not knowing officially what's going on in

11 those estates.

12 Our relationship with KPMG receiver

13 in Asia, we have been able to work together

14 on protocols and deal with problems, and as

15 a consequence liquidation results have been

16 really very strong.

17 International protocol, what this is

18 is trying to get receivers in various

19 countries to work together so we can get

20 out of this case before I die. And the

21 issues that we have are really you have got

22 rules in each country. Obviously the rules

23 in that country will govern. There is no

24 question about the sovereignty, but the

25 cooperation and information sharing, having



2 a common objective of trying to do right by

3 the creditors, trying to get through these

4 matters in a fair way, trying to get

5 through these matters in a cooperative way

6 has been very important and that's what

7 Judge Peck has supported in this protocol,

8 and aside from the U.K. and Japan we have

9 received support from the administrators in

10 the other receiverships.

11 Challenges. Again, on the LBI front

12 it's not clear to us what's going on in

13 that estate, lack of transparency. As the

14 largest creditor we remain in the dark as

15 to the substantial amount of the ultimate

16 recovery or lack of recovery.

17 On the LBIE front, we could use

18 improved cooperation. It's a very

19 conservatively-administered estate and that

20 has handicapped us.

21 In terms of our financial

22 position -- again, there is a lot of

23 detail. I apologize. I don't think there

24 is any other way we could provide it,

25 though. You see on the vertical axis is



2 all the various subsidiaries along with the

3 parent.

4 As we showed you in January, we are

5 treating this as the subsidiaries are

6 sacred, cash goes in there, cash stays in

7 there. There isn't a commingling of the

8 cash. There is a clear audit trail of all

9 the cash receipts and disbursements related

10 to the various subsidiaries into the

11 holding company.

12 The cash, if you look across the

13 horizontal access, it is sort of an

14 activity report of where we are. Where we

15 are today, our cash position today is

16 $12.2 billion as of 6-30. You see the

17 various components of it in terms of the

18 debtor, non-debtor components, and all the

19 accompanying footnotes. Again, this is on

20 our website and it was filed as an 8-K this

21 morning.

22 Bank platforms, the first one I'd

23 like to cover is the bank which is Utah.

24 This bank there has been significant

25 progress. As you can see to the far right,



2 if you look down four lines down you see

3 RBC ratio, risk based capital. We ran into

4 trouble in December. Our risk based

5 capital was down to 5.4 percent. As of the

6 end of March the risk capital is 9.9. The

7 FDIC wants you at 10 percent or better.

8 And so we have made some significant

9 headway to get there. We actually think

10 today we were in excess of 10 percent. We

11 are in excess of 10 percent today. We also

12 believe that because of the way in which we

13 have had to mark these books, that this is

14 a very, very conservative marking that has

15 taken place in -- I shouldn't say very,

16 very. A very conservative. The next

17 (inaudible) would be very, very

18 conservative. The equity value you see

19 here of $572 million, we feel pretty

20 comfortable with and in fact, think it

21 could be as high as a billion dollars of

22 ultimate realization of value.

23 So this is an important asset for us

24 to preserve. Despite the efforts of some

25 in government to close this and wrap this



2 bank, we are doing our best to try and keep

3 this bank open so that as we wind this bank

4 down or find a buyer for this bank we can

5 realize the value of this equity.

6 Moving on to the Thrift, the other

7 institution we have other than the Utah

8 bank is called the Aurora Bank which also

9 consists of our Aurora servicing business.

10 The mortgage servicing business today

11 services $114 billion worth of mortgages.

12 It should be a profitable -- it should be a

13 business that under normal circumstances

14 without the service advances it should be

15 making the estate something on the order of

16 a hundred million dollars a year of EBITDA.

17 It's a nice business. As you can see here,

18 when we started the process on 9-30, the

19 risk based capital was 10.4. It dropped

20 down to 5.9 by 12-31. We have brought that

21 back up to 10.3 percent. We were hopeful,

22 because we were told that if we brought

23 that back up to 10 percent, the FDIC would

24 open the window so that we could start

25 issuing brokered CDs only to the level that



2 they existed at the time of the bankruptcy.

3 The reason we need to do that is we need to

4 match our liabilities with the asset. Our

5 liabilities are running off at a faster

6 pace than the assets as they are maturing.

7 If we can solve that matching problem,

8 again, this portfolio which is valued today

9 at $592 million worth of equity, we think

10 is very, very conservatively priced. We

11 think that the equity value here could be

12 in excess of a million dollars as well, so

13 we are, again, very interested in

14 preserving this value for the estate,

15 getting the CDs opened up and being able to

16 re-broker the CDs and being able to match

17 the asset run-off with the liability

18 run-off.

19 The bank book itself -- again, I

20 apologize for a busy schedule. Down the

21 one axis, the vertical axis, is the various

22 owners of the bank loans. Across the top

23 axis consists of funded and unfunded and

24 whether it was pledged or not to JPMorgan.

25 The key is the fourth numerical column. It



2 says Funded, Total. If you go down, the

3 Lehman banks we have just talked about, the

4 first line is the Utah bank, second line is

5 the Thrift, for a total of 2,249. The bank

6 team is managing the next four columns plus

7 the CLOs down at the bottom; Pine, Spruce

8 and Verano, and involved in the LB Bankhaus

9 London oversight. So the responsibility of

10 the bank team is roughly about $7 billion

11 and I believe that's the value that they

12 believe this portfolio will collect out at.

13 As you see, the unfunded, we have a

14 significant unfunded problem in the far

15 right. You see a $17 billion unfunded

16 problem. This continues to drop like a

17 rock. I would expect by this time next

18 year this would go away, this would be

19 gone.

20 Moving on to principal investments

21 and private equity, down the vertical axis

22 you have got the various categories of

23 assets. Across the horizontal you have got

24 the post-petition activity. Starting off

25 we have 7,659 positions being managed by



2 this team. Pre-petition that was valued at

3 16 billion. There had been various cash

4 sources and cash uses in the next two

5 columns, and looking at the portfolio,

6 Alvarez & Marsal along with management have

7 revalued the portfolio down and we have

8 taken the value of that portfolio down as

9 of 3-31 by 6 billion 347. So we believe

10 that the carrying value of that as of

11 3-31-09 is $9.2 billion.

12 The current unfunded commitments,

13 2.7, and again, much of this relates to the

14 private equity group and consists of the

15 areas where we are the GP. This will be

16 coming down as we -- again, as we dispose

17 of our GP interest in the real estate

18 portfolio, that number will also come down.

19 Moving on to the next asset

20 category, real estate assets, down the

21 vertical axis you just see the commercial

22 North America, Europe and Asia and

23 residential portfolios. We have a very

24 small residential portfolio. Across the

25 top axis, again, the activity. When we



2 started this on the 12th of -- when we

3 started with the financials that were

4 available on the 12th of September, there

5 was $22.9 billion on the books. There have

6 been some additional asset investments and

7 some receipts and disbursements. With a

8 market change we took that, again, this is

9 Alvarez & Marsal and the management of the

10 company, we revalued that portfolio. We

11 thought that that portfolio was worth

12 $5.4 billion less than had been indicated

13 at 9-12. That would be a combination of a

14 deterioration of market conditions and

15 maybe just aggressive marks.

16 The carrying value on the real

17 estate portfolio as of the end of December,

18 we will have -- like I said, this number

19 will be updated for you in mid August, but

20 it's $16 billion. That is the value after

21 the scrubbing down that A&M and Lehman has

22 put this portfolio through, we have come up

23 with a value that we believe is a

24 $16 billion value. Of course, that value

25 is subject to changes in the market and



2 obviously timing.

3 Moving on to the next asset, the

4 category derivatives. Derivatives at the

5 last meeting -- this was the only part of

6 the engagement which has scared me. The

7 derivative portfolio when we started the

8 process (inaudible) 1.2 million derivative

9 rate representing, as I understand,

10 (inaudible) telling people $6 trillion of

11 notional aggregate. I guess it's closer to

12 34, 32 -- 39. Excuse me. 39 trillion of

13 notional value. And today we have

14 approximately 300 FTEs, full-time

15 equivalents, working this problem, trying

16 to get through the various termination

17 claim calculations and trying to value the

18 portfolio, and I will tell you that I am

19 very pleased where we stand. I mean, this

20 process is picking up speed. The last 90

21 to 120 days we have been making terrific

22 headway and we appreciate the support of

23 the Unsecured Creditors Committee as well

24 as the court. They have been very

25 supportive in trying to sort this out.



2 Moving on more specifically the cash

3 collections, you see we were tracking this

4 on a periodic basis as we met with the

5 various committees. We are up to

6 $5.8 billion in collections from the

7 derivative portfolio. I believe if you ask

8 the team today they believe there is

9 another 5 to 5 and a half billion dollars

10 in potential collections from this

11 portfolio and we are -- we would see this

12 trend continuing into the balance of this

13 year.

14 Now, the specifics, these are some

15 assumptions. I don't think we need to go

16 through them. They are assumptions which

17 you can read at your leisure.

18 In terms of detail, I mean, we

19 understand that there is a real need by

20 some of the creditors to understand the

21 value of their claims. Maybe, more

22 importantly, to create a liquid market for

23 their claims, and that liquid market comes

24 about when people have information. So we

25 are going to attempt to be as responsive as



2 we can without sharing anything from an

3 insider perspective, inadvertently sharing

4 it, but we recognize your needs, those of

5 you who are derivative holders. We are

6 going to try and break out information for

7 you in the next 30 days which will lay out

8 the derivatives by subsidiary, where we

9 stand with those and what value we placed

10 on those derivatives after applying

11 appropriate reserves to them, which will

12 give you at least a feel for where we are

13 subsidiary by subsidiary on a derivatives

14 book.

15 From a global standpoint, which is

16 what you are going to see now, you are

17 going to have to be patient for another 30

18 days, but by mid August, the latest, we

19 will have that information for you.

20 On the receivables side we have

21 27.1 billion and that would consist of

22 open, terminated and final settled trades.

23 You see the number of trades we are talking

24 about here on the receivables side is

25 788,000 trades. On the payable side we



2 have 16 billion in the aggregate, which is

3 owed others, and that represents 390,000

4 trades.

5 In terms of the composition of that,

6 again, the MOR we lay out. The

7 receivables, $27 billion, is broken down by

8 subsidiary. The payables of 16 billion is

9 broken down by subsidiary. And then we

10 attempt to break down the number of trades

11 and the activity in each one and both the

12 receivables and payables, and we will

13 expand upon that.

14 The far right-hand grouping, which

15 is the collections by subsidiary, which

16 will give you -- again, if you are trying

17 to do estimates in valuation, this

18 hopefully will -- as we fill in some of the

19 blanks, this will hopefully benefit that

20 activity, although it isn't our primary

21 responsibility. We understand that to the

22 extent that we can help make a liquid

23 market for this, it helps the overall

24 process.

25 Key priorities on the derivative



2 book is, again, the active disposition of

3 open contracts. All but 1 percent of the

4 open contracts have been resolved. There

5 is an aggressive assignment process going.

6 It's been slow going and the hedging

7 process -- again, we are a bankrupt company

8 involved in trying to unwind derivatives

9 and now we are in the hedging game. This

10 is probably, again, one of the firsts in

11 bankruptcy. But the team to date has

12 hedged about a half a billion dollars. The

13 hedging is being done in order to lock up

14 value so that the estate does not have to

15 worry about what is the value of that

16 derivative.

17 Legal strategy, again, read at your

18 leisure. We are in the midst of a case

19 right now with a large bank which we

20 believe owes us in excess of somewhere

21 between half a billion to a billion dollars

22 and we are aggressively pursuing that

23 lawsuit and in the coming weeks you will

24 hear more about that.

25 On the forensic side, this warrants



2 a little closer inspection on the forensic

3 side. We had been trying to reconstruct

4 the actions of Lehman's clearing banks,

5 JPMorgan, Bank of America and Citibank, in

6 the time period leading up to the filing.

7 We have been reconstructing the actions of

8 the DTC and the Federal Reserve during the

9 week of the filing after LBHI and before

10 the filing of LBI. We have been reviewing

11 the disposition of Lehman's collateral by

12 the clearing banks to assess whether or not

13 it was done in a reasonable fashion, a

14 commercially reasonable fashion. We have

15 been reviewing the collateral given to

16 Barclay's at the time of the LBI sale to

17 make sure that what was exchanged was to

18 the benefit of the borrower.

19 Last slide, in order to help you

20 understand the complexity of this case, I

21 know -- a question I get asked a lot is

22 what's the recovery going to be. Well, the

23 answer to that is there is no simple

24 answer. I mean, first of all, recognize

25 that that question has to be first asked of



2 each subsidiary, that each subsidiary has

3 assets and has liabilities and the

4 recoveries and percentage recovery of one

5 subsidiary might be 60 percent and the

6 recovery of another subsidiary might be

7 30 percent. Our assumption is that we are

8 treating -- while we talk on a consolidated

9 basis in terms of your recovery, you should

10 be talking about an individual subsidiary

11 by subsidiary and then ultimately Holdings

12 basis. This was an attempt to show you

13 from a Holdings perspective what some of

14 the challenges are. In terms of -- again,

15 simplistically a recovery is a function of

16 proceeds and claims. The proceeds consists

17 of cash, illiquid assets, lawsuit net

18 recoveries, intercompany receivables, less

19 any priority claims we have. Priority

20 claims we just paid off is the (inaudible)

21 Guaranty Corporation where we paid them

22 approximately $120 million and that's a

23 priority that's behind us, but those type

24 of priority claims are out there and may be

25 a reduction of the proceeds.



2 As we look at those proceeds, as we

3 look at the components of proceeds, we say,

4 well, cash is obviously known today. We

5 are in excess of 12 billion in cash. On

6 the illiquid assets side, if you go back

7 and you add up all the stuff from this, you

8 might get a range of 35 to $40 billion on

9 the illiquid assets as of today. That

10 won't be the hard part, because I think by

11 the time August rolls around, August of

12 this year rolls around, you will have a

13 pretty good handle on what the illiquid

14 asset portfolio looks like, subject to

15 changes in market condition what it looks

16 like. What you are not going to have a

17 handle on is what is the lawsuit and

18 recoveries going to be, if anything. What

19 you won't have is what the intercompany

20 receivable has. Understand what that means

21 is that LBHI, Holdings, was the bank to all

22 the various subsidiaries and as a banker we

23 lent in excess of $50 billion to those

24 subsidiaries and some of those subsidiaries

25 have given us a good indication of what the



2 recoveries might be and some have not, as

3 we discussed earlier in the presentation,

4 so we don't know to what extent -- how much

5 of that $50 billion is going to be

6 recovered and, like I said, while we

7 have -- we haven't identified any priority

8 claims to date that we haven't paid off,

9 but I'm sure there will be some.

10 On the claims side we will have --

11 again, shortly after the Bar date we will

12 have a pretty good handle on what the

13 scheduled claims were, what the stated

14 claims were when we went into bankruptcy.

15 That's really not the problem. The problem

16 is the next category of claims, derivative

17 claims from the terminations. In the case

18 of these claims there is a significant

19 amount of settlement process that's going

20 to have to take place. This is not going

21 to be finished any time soon. This is

22 going to take a while.

23 The third component is subsidiary

24 guarantees. What has to happen at each of

25 the subsidiaries is they have to figure



2 out, okay, if Holdings guaranteed the

3 subsidiary, the subsidiary had a hundred

4 dollars that was guaranteed and the

5 subsidiary assets collect out $60, then

6 there would be a $40 claim that was brought

7 to the estate and, thus, what's clear is

8 that it's dependent upon the speed of the

9 other receivers in terms of getting the

10 calculation. Somewhat out of our control.

11 And then last but not least, the

12 intercompany payables. We have $50 billion

13 of receivables, net receivables. We also

14 have a much larger receivable number

15 because we have a payable number which is

16 net against the receivable number, so we

17 don't have -- again, that is dependent not

18 on our books, but on what the receivers are

19 going to agree to, which is why the

20 international protocol is important if you

21 want to (inaudible) through this thing and

22 get it any time soon.

23 So when people ask me -- one of the

24 frustrations is I really believe in terms

25 of valuing a claim today there is a huge



2 unknown, but the unknown is not in the

3 assets which we control here in the

4 Holdings estate. The unknown is more in

5 the determination of the derivatives,

6 litigation of the lawsuits, and figuring

7 out what the due to/due from is on the

8 intercompany accounts and what the

9 guarantees that are going to be called

10 upon. So it's going to be a long time

11 before this becomes anything other than a

12 bowl of (inaudible). So for those people

13 who are (inaudible) I can honestly say I

14 don't have a clue, I don't have a clue what

15 the right number will be. I do have a clue

16 what the numerator is going to look like,

17 the numerator being the proceeds in terms

18 of cash and liquid assets, I have a feel

19 for the lawsuits, you know, a very general

20 feel for the lawsuits, but beyond that we

21 are going to be slugging through it in the

22 same timetable you will be slugging through

23 it.

24 So with that, that's the completion

25 of the presentation. Like I said, this is



2 on the website. It is also filed in an

3 8-K.

4 It's open for questions.

5 Andy, do you want to --

6 MR. VELEZ-RIVERA: Just a word of

7 admonition. This is not is a public

8 deposition. If you have questions relating

9 to a piece of litigation or a specific

10 claim or if you just go too long, I will

11 cut you off. So if folks would step up to

12 the microphone which are up and down the

13 center aisle, state your name, who you

14 represent, we will get the questions under

15 way.

16 Sir in the back.

17 SPEAKER: Thank you very much. My

18 name is (inaudible) Kamenski (phonetic)

19 from Paulson & Company and I have a couple

20 of questions. In terms of the loan book, I

21 guess it's slide 14 and slide 16 on the

22 real estate book, can you comment on the

23 loan book in terms of that last category?

24 I think you mentioned that those assets on

25 the loan book are pledged to JPMorgan in



2 terms of the nature of that pledge and what

3 those assets are going to be, and similarly

4 for slide 16 on the 14.8 billion of real

5 estate assets controlled by other

6 receivers, if you could just comment about

7 the nature of those assets and the nature

8 of your claims against those assets, and

9 then it also refers to $4.8 billion

10 repurchase agreement that was terminated,

11 again, if you can just comment about what

12 the nature of that asset was.

13 MR. MARSAL: Mr. Kamenski, that's a

14 mouthful.

15 SPEAKER: And I have another

16 question too, but I think if you look at

17 slide 14 first.

18 MR. MARSAL: Okay. Slide 14, first

19 question you raised was on the pledged

20 assets?

21 SPEAKER: That's right.

22 MR. MARSAL: The pledged assets

23 which would be in the sixth column. You

24 are asking about the 4.352 million of

25 pledged assets?



2 SPEAKER: That's correct.

3 MR. MARSAL: And the question is who

4 are they pledged to?

5 SPEAKER: That would be the first

6 question.

7 MR. MARSAL: They are pledged to

8 JPMorgan.

9 SPEAKER: And is that part of an

10 existing financing structure or were those

11 assets -- how did the loan book get pledged

12 to JPMorgan?

13 MR. MARSAL: How was it pledged?

14 John, would you like to answer that?

15 MR. SUCKOW: There were a number of

16 structures that were pledged to JPMorgan

17 prior to the filing of bankruptcy, so this

18 serves as collateral to a number of the

19 different agreements that existed with

20 JPMorgan.

21 SPEAKER: Do you know offhand if

22 that included the rates restructure?

23 MR. SUCKOW: That would include the

24 rates restructure.

25 SPEAKER: Thank you. And then I



2 guess if we go to slide 16. The

3 14.8 million of real estate assets

4 controlled by the receivers --

5 MR. SUCKOW: I think the

6 14.8 billion and 4.8 billion were brought

7 up, when you were talking about that

8 forward of this, was an attempt to

9 reconcile that bank book as presented back

10 in January. You may recall I think the

11 number back then was approximately 42

12 billion. At that point 14.8 specifically

13 identified assets around the world that

14 were subject to other receivers. For

15 example, Bankhaus was one of those. No,

16 not Bankhaus?

17 (Inaudible.)

18 MR. SUCKOW: I don't know if you

19 heard that back there, but it's basically

20 Europe and Asia under control of LBIE, PWC

21 or Asia and KPMG, and then the 4.8 billion

22 is a repo that essentially terminated post

23 filing, so the purpose of that is to

24 reconcile the January presentation.

25 SPEAKER: And of that 14.8, those



2 underlying assets themselves, are they in a

3 financing structure similar to the loan

4 book or are the bottom line assets

5 unencumbered and the nature of the claims

6 through claims creditors against its

7 assets?

8 MR. SUCKOW: We are just a creditor

9 in those assets.

10 SPEAKER: I have one further

11 question.

12 MR. VELEZ-RIVERA: No.

13 SPEAKER: Hi, Mark Heimowitz

14 (phonetic) from Citi.

15 Mr. Marsal, you mentioned that you

16 are looking at all of the recoveries on an

17 individual subsidiary basis and looking at

18 subsidiary guarantee claims. In your

19 experience now in the books and records of

20 the company, is there any entanglement

21 issue or are the books and records clean

22 and unencumbered between subsidiaries and

23 Oldco?

24 MR. EHRMANN: I think it's fair to

25 say we are still reconciling (inaudible).



2 SPEAKER: And with respect to

3 transactions with the outside world, has

4 there been any work done on whether or not

5 if the creditors of the subsidiaries relied

6 on the individual credit quality of the

7 subsidiaries as opposed to the credit --

8 MR. EHRMANN: We are not going to

9 comment on what other people rely on.

10 SPEAKER: I guess the final

11 question, are you exploring the concept of

12 substantial consolidation of the --

13 MR. WAISMAN: We are exploring all

14 legal options with respect to the estates.

15 MR. MARSAL: Our approach is not to

16 assume there is going to be any substantive

17 consolidation. That will obviously be a

18 decision that will be made later by the

19 court. Our approach is to keep each

20 subsidiary, to respect the integrity of the

21 legal entity structure.

22 SPEAKER: I am Fayel Romano

23 (phonetic) of SGE from Italy and I

24 represent Antonio (phonetic) creditors.

25 The question is related to guarantees. In



2 the case of those issued by Lehman

3 Treasury, the Netherlands company, since

4 there is not the Bar date and the recovery,

5 of course, yet as far as the entity is

6 concerned, it appears logic and appropriate

7 to file claims against the mother company,

8 LBHI. Okay. Would you confirm that it's a

9 reasonable logic (inaudible) to file for

10 guaranty for 100 percent value? This is

11 the first question.

12 MR. WAISMAN: We are not in a

13 position to provide advice to third

14 parties. If people believe that they have

15 claims against the debtors, they should

16 consult the bargaining order and file

17 claims consistent with the bargaining

18 order.

19 MR. MARSAL: It's not our intent.

20 Our intent -- we view that we are working

21 for the creditors. If you are a legitimate

22 creditor, it's not our intent to use the

23 Bar date as a shield to deny you any

24 legitimate claim. So we will work with you

25 if there is confusion and we will do



2 whatever it takes to get all legitimate

3 claims captured in this process. I mean,

4 you as a beneficiary, if a guaranty was

5 made and you have filed a legitimate claim,

6 so one of the questions that have come up,

7 are we using the Bar date as a scheme to

8 avoid claims, absolutely not. We have no

9 intention of doing that. What we do want

10 to do, though, is we need to move the

11 process forward. We need to be able to

12 distribute that cash, and it keeps growing,

13 to the various creditors, and to do that we

14 have got to get a handle on these -- a

15 reasonable handle on the claims

16 (inaudible).

17 SPEAKER: You are right. The point

18 is that, of course, in the case you have

19 how much you get from the guaranty company,

20 let's say treasury, since you have the

21 number, you may file the difference. If

22 you don't have that number, possibly within

23 the Bar date you should file for 100

24 percent. This is I understand should be

25 logic.



2 MR. EHRMANN: We are actually

3 working with the Dutch administrative in

4 order to coordinate the procedure.

5 SPEAKER: Good morning. Vladimir

6 (inaudible). I just have two questions.

7 One relates to the two sets of schedules of

8 assets and liabilities that were filed -- I

9 believe the first set of schedules was

10 filed March and the second set -- first

11 schedule is filed March 12th, the second

12 schedule was filed June 15th, and my

13 question relates to very significant

14 differences between those two schedules.

15 Could you just give us an idea of, first of

16 all, what was the need to file an amended

17 set of schedules, first of all, and

18 secondarily, you know, why were there

19 significant discrepancies, differences

20 between intercompany payables and

21 receivables between the March schedule and

22 June schedule?

23 MR. FOX: Vladimir, just tell me

24 which schedules are you looking at, for

25 which debtors?



2 SPEAKER: I think some of the

3 biggest differences are down with the LBSF

4 and LCPI.

5 MR. FOX: The biggest difference is

6 the LBSF and LCPI schedules that were filed

7 in the first instance were based upon

8 September 14th closing information and in

9 the second instance were based upon the

10 beginning of October closing information,

11 which was on or about the petition date of

12 those two entities. So you have a timing

13 difference that took place. You also have

14 certain offsets that are described in the

15 notes to each of those. If you would like,

16 you can discuss this with us off line and

17 we can go through a detailed reconciliation

18 with you. I don't want to hold up the

19 whole group, but those are globally

20 essentially the differences there.

21 SPEAKER: And just essentially did

22 you net intercompany secured against --

23 secured receivables against secured

24 payables and unsecured receivables against

25 unsecured payables?



2 MR. FOX: We did not net the

3 receivables against payables, per se. If

4 there was a position that was repoed out to

5 either LBI or LBIE, we did net those

6 positions, but we didn't net any unsecured

7 position.

8 SPEAKER: Right. Understood. And

9 just regarding intercompany receivables

10 collectively, I believe the most recent

11 schedules for LB does show approximately

12 150 billion of intercompanies and I believe

13 Mr. Marsal mentioned earlier in the

14 presentation there is about a $50 billion

15 number. Can you describe the difference

16 between the 150 and the 50 billion

17 intercompany with respect to LBHI?

18 MR. MARSAL: I think he is going to

19 look to me now.

20 MR. FOX: I think those are two

21 different definitions.

22 MR. MARSAL: The 50 billion that I

23 used was --- in the presentation that was

24 being made in July in London to the various

25 receivers, that's a net number. I think it



2 may be a net number and you may be

3 referencing a gross number.

4 MR. EHRMANN: That's right.

5 SPEAKER: Understand. And then the

6 LBHI initial September 14th -- as of

7 September 14th, '08 MOR, there are some

8 very large significant securities assets,

9 about 5.9 million in government securities,

10 10.7 million in mortgage-related

11 securities, 5.3 billion in corporate

12 securities. Are those securities or

13 proceeds, cash proceeds, are they still

14 property of LBHI or do they get somehow

15 netted out or essentially foreclosed on as

16 counter-parties, you know, get called in in

17 repo lines? Are those still assets of

18 LBHI?

19 MR. FOX: Many of those positions

20 were repoed, so again, either LBI or LBIE,

21 they were netted against the intercompany

22 amounts. However, the estate did make a

23 claim against LBI for those positions and

24 will be making a claim to LBIE as well.

25 SPEAKER: Understood. Last



2 question. Related to the derivative assets

3 of debtors collectively I believe you

4 mentioned earlier in the presentation that

5 you are valuing the asset at 27 billion and

6 you mentioned early this morning that about

7 6 billion has been collected and you are

8 anticipating further collections of about 5

9 billion, that's 11. So the question is

10 what's the difference between the 27

11 accounting value and the 11 that you have

12 and anticipate to collect this year

13 (inaudible)?

14 MR. MARSAL: The problem is I

15 probably misspoke. I am giving you -- I

16 gave you something that was an internal

17 estimate of what we thought was a

18 reasonable target, but I think from an

19 accounting standpoint what Bill Fox will be

20 establishing is reserves against that

21 receivable as we go through rivet by rivet

22 of what's the likelihood we are going to

23 collect on that derivative based on the

24 circumstances surrounding it, and when we

25 have done that as a team, the team has



2 estimated roughly an overall collection

3 about $11 billion, which is where the

4 number comes from. We have collected 5.8

5 to date. 11 billion would mean another

6 5.2 billion. My team is conservative by

7 nature, so I said $6 billion.

8 SPEAKER: So, in other words, you

9 are thinking about a 15 billion reserve

10 against a 26 billion asset?

11 MR. MARSAL: Yes, that would be

12 the --

13 SPEAKER: What about the derivative

14 liability, is that also estimated to be

15 sort of in the 20 billions?

16 MR. MARSAL: Not prepared to

17 estimate that. It's too early. We need to

18 get to the Bar date. Then after the Bar

19 date when we get everything in, then I

20 think we can begin to intelligently answer

21 that question. We only have fragments of

22 that today.

23 SPEAKER: Thank you very much.

24 SPEAKER: Paul (inaudible) from

25 (inaudible). I have a follow-up on



2 Mr. Kamenski's question. Can you just

3 explain on the 14.8 billion of real estate

4 held by other administrators how much --

5 have you been able to look into those

6 intercompanies and figure out how many

7 other third-party creditors there are?

8 Were those primarily financed by

9 (inaudible)?

10 MR. SUCKOW: I don't think we know

11 the answer to that at this point.

12 SPEAKER: And what entities do they

13 sit in?

14 MR. SUCKOW: I don't think we have

15 an answer to that.

16 SPEAKER: The 4.8 billion, can you

17 just explain that a little bit better, what

18 exactly that is?

19 MR. FITTS: These were for five

20 different repos that were secured by

21 mortgage collateral that were actually

22 folded (inaudible).

23 SPEAKER: And how did it make it

24 into the presentation? Obviously it's

25 there for a reason.



2 MR. FITTS: As John said, we were

3 trying to reconcile back to the January

4 presentation.

5 SPEAKER: So would that be an asset

6 of the estate or --

7 MR. FITTS: I don't think it's an

8 asset of the estate.

9 MR. MARSAL: I think we probably

10 should reconcile it, because it sounds like

11 it is very confusing for people, but,

12 again, it was done at a point where we were

13 earlier on in the process with not as good

14 a fact base or understanding as we have

15 today.

16 MR. FITTS: In the January

17 presentation it was shown as that. The

18 number was 22 here and 42 there. We were

19 trying to make sure people understood.

20 SPEAKER: And then on the cash

21 flows, obviously it's been impressive.

22 Again, back of the envelope trying to

23 figure out how much is coming into the

24 estate, there seems to be monthly inflows

25 of commercial paper and holdings. I am



2 sure you have modelled out over the next

3 year, two years, what the cash flows might

4 be. Can you discuss that a little bit.

5 MR. MARSAL: Well, we are not

6 prepared to share that model with you, but

7 you are absolutely right, we have each of

8 the asset teams now trying to forecast

9 their cash requirements and cash fall-off

10 from each of the asset teams and that is --

11 it's a planning process which we should be

12 in a lot better shape by the middle of the

13 fall to be able to share with people. But

14 as of today what we know we have, as we

15 look at this presentation, we have 12

16 billion in consolidated cash. If you add

17 up all the pieces that we talked about, the

18 illiquid assets, you come out with a number

19 of 35 to $40 billion of illiquid assets and

20 value that the teams think is there today,

21 subject to changing market conditions,

22 clearly, and subject to time, but so you

23 add those two numbers and you have got two

24 pieces of -- components that I talked about

25 in the last schedule, but the other



2 components we don't have, and what I would

3 say to you is by the middle of the fall we

4 should have much greater clarity on the

5 question that you just asked as well as

6 what the values are of the illiquid asset

7 portfolios.

8 SPEAKER: Quick follow-up.

9 MR. VELEZ-RIVERA: No. Next.

10 SPEAKER: (Inaudible) from Elliot

11 (inaudible). So this notion of the

12 derivative receivable, the collections

13 running at 800 million to a billion a month

14 and sort of projecting out a $12 billion

15 cash balance by year end, and then what

16 happens then? Collections just stop or,

17 you know, what's behind the $16 billion

18 shortfall? The 27 less the 11 or 12 that

19 you expect to end up with at the end of the

20 year.

21 MR. MARSAL: What I would say is we

22 are trying to do a derivative by

23 derivative, receivable derivative by

24 derivative analysis, and the team has come

25 back and said we think a realistic target



2 given all the facts and circumstances we

3 have with some of these things is

4 approximately 11 to $12 billion ultimate

5 collection on the derivative. We are going

6 to shoot to do better than that, Mr. Ryan

7 (phonetic), as you well know, but we are --

8 as to what would happen with the rest of

9 the book, it would mean there would be a

10 write-off because there would be a

11 legitimate termination taking place there

12 on the part of that counterparty. And to

13 the extent it's not legitimate, we will

14 fight it in court, we will pursue it, but

15 the conclusion is that when you establish

16 reserves, it's your team's best guess on

17 what the collectability is of that asset as

18 opposed to what's on the books today.

19 MR. EHRMANN: The value comes from

20 three primary sources and some of that is

21 in the litigation strategy chart, Ryan.

22 Essentially as the estate went into

23 bankruptcy, the SPVs, who were our

24 counterparties, basically submitted the

25 estate to subordination and we are actively



2 fighting that in court and hence we are

3 pretty reluctant to putting a number on

4 that given that we are in the process of

5 trying to maximize recoveries there.

6 The second piece that has actually

7 impaired most of the value is a lot of

8 counterparties are arguing multiple sorts

9 of setup rights, and as you know we are

10 actively fighting that in court and

11 obviously hoping that we will maximize our

12 recovery by winning those cases.

13 And then the third piece is that

14 when we went into bankruptcy the street

15 basically got a big advantage over us

16 because it had an option to terminate us at

17 favorable validation terminations, and so

18 we are in the process of challenging those

19 and that's why, as I pointed, out at high

20 level we have estimated that the shortfall

21 is going to be pretty substantive.

22 Obviously as we win the cases in court, we

23 can hope that will enhance the recovery.

24 SPEAKER: So to be clear, based on

25 everything that's done publicly and this



2 litigation strategy, you say that the swaps

3 facing the SPVs are worthless, what it

4 sounds like, if I am interpreting this

5 correctly, from an accounting perspective

6 you are fully reserved against those

7 positions.

8 MR. EHRMANN: That's correct.

9 SPEAKER: And then the follow-up

10 question --

11 MR. MARSAL: What I am saying is

12 that what we are going to do is they are

13 going to shoot me if I haven't given you an

14 estimate on the value of collection.

15 That's the best thinking of the team today.

16 As we get smarter -- and we are getting

17 smarter. We are learning about

18 derivatives. By the end of this process we

19 are going to have derivatives down cold.

20 Trust me. And we are getting smarter and

21 smarter and we believe that will help us on

22 the receivable collection, so we should

23 improve that number, and it should result

24 in a reduction of the claims on the payable

25 side, but I would say that there is



2 probably a lot more upside to that estimate

3 than downside. And what you might see in

4 mid August is a different number, so don't

5 get too carried away. What you might see

6 is a number which is higher or lower than

7 that number based on more input, but in

8 August when we come up with a number we are

9 going to come up with a number that's going

10 to say we believe that this is a legitimate

11 derivative value that -- on the receivables

12 that we are going to ultimately collect

13 out, just as we have done in real estate,

14 proprietary assets and bank loans.

15 SPEAKER: Did I hear someone here

16 characterize that as a short-term target?

17 Maybe not.

18 So clearly the derivatives book even

19 between the 12th and early October

20 experienced quite a bit of volatility. We

21 see that in the balance sheets and a lot of

22 the receivables remain open in October into

23 the first quarter. I guess I won't ask

24 very precision here, because I don't think

25 I will get it, but directionally you talk



2 about the movement in your derivative

3 receivable on a mark-to-market basis

4 setting aside recoverability considerations

5 just generally post filing, giving so much

6 for the value remaining in open contracts

7 for an extended period.

8 MR. EHRMANN: I think directionally

9 generally the portfolio moved in the

10 estate's favor (inaudible) September to

11 date as a result of a reduction in interest

12 rates and in the credit (inaudible). We

13 obviously already (inaudible) locked into

14 those values (inaudible). All the

15 terminated trades locked into the value.

16 On the open trades we are actively pursuing

17 hedging strategies and assignment

18 strategies, and as Bryan pointed out, that

19 trade population is now point 5 percent of

20 the entire population, so we realize that

21 we have ways to go, but I think we have

22 secured (inaudible) crystallized --

23 (inaudible) receivable (inaudible).

24 THE WITNESS: Point 5 percent of the

25 trades by number or value?



2 MR. EHRMANN: By number.

3 SPEAKER: Thank you.

4 SPEAKER: (Inaudible) from

5 (inaudible) Capital Management. Just a

6 quick question I guess for clarifying on

7 the intercompany receivables and payables.

8 In some of your working assumptions with

9 respect to mutuality and set-off, can you

10 clarify whether it's just pure accounting

11 and general ledger sort of procedures with

12 respect to the varying line items, no

13 receivable, derivative receivable, repo,

14 reverse repo or an intercompany

15 receivable/payable, if you are treating all

16 those in an aggregate as you look to set

17 off between entity 1 and entity 1A

18 depending on which side of the balance

19 sheet, or are you treating those, you know,

20 in some sort of priority waterfall

21 depending upon what type of intercompany

22 sort of line item exists?

23 MR. FOX: The general ledger

24 information that goes into the financial

25 statements that you saw, whether it be



2 intercompany or (inaudible) positions,

3 there was just a general accounting

4 consistent with the way the company

5 reported it in the past as far as which was

6 listed first, which was listed second,

7 et cetera. There is no particular priority

8 that was looked at vis-a-vis the bankruptcy

9 proceeding and realization of the assets

10 consistent with past practices of the

11 company.

12 SPEAKER: But just to clarify, so in

13 aggregate LBHI was a net creditor in

14 another debtor estate. It was irrespective

15 of whether $10 of the $20 receivable was

16 classified as a repo as opposed to just a

17 traditional intercompany receivable, or is

18 that repo at the estate which (inaudible)

19 creditor (inaudible) and considered a

20 secured claim?

21 MR. FOX: In the September 14th

22 financial statement all the amounts were

23 shown on a gross basis, whether it was repo

24 or it was just a cash advance with respect

25 to intercompany balances. When we updated



2 the October 3rd or October 5th MOR

3 statements for companies like LBSF, LCPI,

4 et cetera, if they had repo positions on an

5 intercompany basis, as I mentioned before,

6 we did net those. However, we did claim

7 those positions against LBI if that's where

8 the repo was and we are also claiming them

9 against LBIE.


11 SPEAKER: (Inaudible) from Davis &

12 Kemper. Quick question in regards to the

13 27 million of assets. How much of those

14 are related to SPEs would you say, roughly,

15 and subject to subordination?

16 MR. MARSAL: I'm sorry, ask the

17 question again? I didn't hear that.

18 SPEAKER: Of the 27 billion of

19 derivative assets or receivables, how many

20 are related to SPEs?

21 MR. EHRMANN: Close to 40 percent.

22 SPEAKER: Okay. Thank you.

23 MR. VELEZ-RIVERA: Next.

24 SPEAKER: Nat (inaudible) from

25 (inaudible). Bryan, you mentioned earlier



2 taking more of an active role with respect

3 to the real estate portfolio. It's my

4 understanding the cash from the estate is

5 being used to support that real estate

6 portfolio going forward. I guess how much

7 cash has been used to date, how much cash

8 may be used going forward, who makes the

9 decisions as to how the real estate

10 business should be, will be, can be run

11 going forward?

12 MR. MARSAL: Okay. Let me see if we

13 can go back to the schedule which will help

14 us answer that. Okay. If you look at this

15 schedule across the top you have got Lehman

16 Brothers Holdings, start of the process

17 there was 1.148 in cash. Today we have 2.9

18 in cash. Then we have the next schedule

19 which shows what makes -- you see the

20 2938.7 at the very top there by Holdings,

21 first line? 2938.7. Let's go to that

22 2938.7 and keep it. Next page, 2938.7,

23 page 11. And if we go -- this is the

24 change in cash during that period, and if

25 we go down, we look down about midway, you



2 have got real estate capital calls, you

3 have -- do you follow me? Real estate

4 capital calls, 328.2. The largest

5 components are Fortress, Prologis, other

6 commercial, and residential real estate,

7 17.3. In terms of any inflows, inflows

8 would be captured above and I am trying to

9 see where in the footnotes they have any

10 inflows. Jeff, help me if you can. The

11 real estate inflows, second line it says

12 "receipts from subsidiaries," 736.7. First

13 line, real estate was the source of cash at

14 $411 million. So you got receipts of 411

15 and you have disbursements of 328. How

16 about that for a tight answer?

17 SPEAKER: Pretty good.

18 MR. MARSAL: Who is making the

19 decision? Well, the protocols are as

20 follows. I really have three bosses. I

21 have the bankruptcy court -- four. U.S.

22 Trustee, bankruptcy court, at least in

23 accordance with certain areas, but

24 bankruptcy court, the Unsecured Creditors

25 Committee and the board of directors of



2 Lehman Brothers. What we have are we have

3 protocols which we respect for various

4 decision-making authority and anything up

5 to -- I think in real estate it's zero to

6 $10 million requires the head of the team

7 to sign off on it. Anything in excess of

8 $10 million requires either John Suckow or

9 Bill Fox to sign off on it as well as the

10 head of the team. Anything in excess of

11 $25 million requires my sign-off, John,

12 Bill, team head and the manager proposing

13 it, and we, in turn, would take it -- we

14 would take it to the Unsecured Creditors

15 Committee and probably the court. Anything

16 in excess of $50 million we would take to

17 the court, the unsecured-creditors

18 committee and that whole line-up I just

19 went through. So we have checks and

20 balances -- and the board. The Unsecured

21 Creditors Committee and the court would all

22 be involved in a material decision of that

23 nature. So we have protocols that have

24 been developed and it's been working pretty

25 well, pretty well for the last -- maybe a



2 blip here or there on derivatives, we are

3 maybe not communicating as well as we

4 could, but aside from an occasional blip it

5 has been working pretty well.

6 MR. VELEZ-RIVERA: Next question.

7 SPEAKER: Alex (inaudible), Bank of

8 America. You mentioned that 40 percent of

9 the 27 billion is fixed in special purpose

10 entities. Have you reserved fully against

11 that 40 percent?

12 MR. MARSAL: No. We are not going

13 to answer that. We are not going to answer

14 anything about a specific -- what we

15 actually reserved against. We kind of told

16 you that there is 27 billion. If you wait

17 until the middle of August, you are going

18 to have a revaluing of that 27 billion

19 which will have a calculation of gross

20 reserves against gross receivables. Under

21 no circumstances are we ever going to tell

22 you what we reserved against an individual

23 settlement. That would be foolish. You

24 wouldn't want us to do that.

25 SPEAKER: Well, so just the 27



2 billion --

3 MR. EHRMANN: Has no reserves in

4 there.

5 SPEAKER: Right, but then we spoke

6 about 16 billion of reserves and

7 effectively taking against that 27

8 billion --

9 MR. EHRMANN: Bryan said that there

10 is an internal estimate, is what I think

11 you said, of $11 billion. So no formal

12 reserves have been taken.

13 SPEAKER: Okay. So of the 16

14 billion theoretical uncollectability, you

15 had mentioned that it was broken up into

16 three groups, right? One was SPVs, one was

17 counterparties and one was terminations.

18 Can you give us a rough estimate of the

19 split between that 16 billion of

20 uncollectability?

21 MR. EHRMANN: I think the split is

22 exactly in that order, i.e., the biggest

23 portion would be SPVs, the next would be

24 (inaudible), and the last would be

25 terminations.



2 SPEAKER: And the calculation of

3 terminations, that's just closing costs

4 or --

5 MR. EHRMANN: It's a number of

6 different situations. It's disagreement on

7 termination dates, disagreement on

8 valuation methodologies, disagreements on

9 the sources of information, disagreements

10 on the actual population that's being

11 trying to be collected. It's a various

12 number of valuation related issues.

13 MR. MARSAL: But we don't want to

14 get into -- the last thing I want to do is

15 step on a land mine. I should never have

16 told you the $11 million number because now

17 you are pursuing it. In August you are

18 going to get a number that's going to be a

19 gross number on derivatives with a gross

20 reserve against it and we are never going

21 to share with you how much we have reserved

22 against an individual derivative, because

23 obviously we are in pretty serious

24 negotiations with people, but for

25 accounting purposes we have to. So you are



2 not going to get any more detail from us.

3 The only detail you might get is something

4 that would not jeopardize our negotiating

5 position.

6 SPEAKER: Well, I am not trying to

7 do that. Just roughly, you know, you

8 mentioned the 27 billion and then you said

9 that 40 percent of that 27 is basically

10 (inaudible) the vast majority of those

11 three buckets are (inaudible) and if I do

12 that 40 percent, it's about 11 billion, so

13 now in this theoretical uncollectability I

14 am trying to sort of --

15 MR. EHRMANN: The reason why I think

16 we are reluctant to break it out, because

17 obviously one of our key strategies is to

18 litigate these issues right to the end, so

19 putting a number on that right now would --

20 MR. MARSAL: We are just not going

21 to give you the kind of response that you

22 keep gunning for. We are not going to tell

23 you how much those SPVs were reserved.

24 Sorry. You can forget it. Go on to the

25 next question.



2 SPEAKER: All right. Next question.

3 I guess in the last meeting you spoke about

4 a certain amount of collateral that you

5 believed JPMorgan held. Where are we in

6 sort of those discussions and how much do

7 you think -- how much collateral do you

8 think JPMorgan still has?

9 MR. MARSAL: Because of the

10 sensitive nature of it, I think we have got

11 to be very careful about what we say here.

12 MR. SUCKOW: I was just going to

13 say, it's a substantial amount of

14 collateral and I think for the benefit of

15 the creditors the less detail we share with

16 you, the better.



19 SPEAKER: I am (inaudible). I just

20 have a quick question on slide 16 when you

21 talked about the 22 billion, 23 billion of

22 pre-petition real estate. I think in your

23 last 341 you talked about 11 billion of

24 this being pledged to somebody. So how

25 much of this is pledged or unpledged now?



2 MR. FITTS: Equating it back to the

3 January 341 hearing?

4 SPEAKER: Yes.

5 MR. FITTS: The answer is

6 approximately $6 billion is unpledged and

7 the other 11 is included in what was shown

8 before under Chase and Bankhaus. That's

9 going to get you back to the $17 billion

10 number.

11 SPEAKER: Right. And I think

12 somebody asked a related question earlier,

13 but can you talk about like you talked

14 about for the derivatives which buckets

15 this real estate is at? Is it all at LBHI,

16 (inaudible), or where is this actually

17 located?

18 MR. FITTS: The vast majority is

19 LBHI and LCPI and I think the third big

20 bucket would be PAMI. I think those are

21 the three big legal entity buckets.

22 SPEAKER: I'm sorry, what was the

23 third bucket?

24 MR. FITTS: PAMI. It's a non-debtor

25 sub.



2 SPEAKER: And my final question in

3 regards to the cash balances, you talk

4 about segregated funds there. Who are they

5 segregated for?

6 MR. MARSAL: Page 10. It varies. I

7 mean, you have got -- look at the

8 footnotes. Footnote D, "amounts segregated

9 per court order, stipulation or debtors'

10 preliminary estimate of third party funds."

11 MR. SUCKOW: The vast majority of

12 this, the billion 5, relates to collateral

13 pledged in the structures, from some of the

14 previous (inaudible), would be cash either

15 (inaudible) position, principal or interest

16 related to structures where (inaudible).

17 SPEAKER: So it's pledged

18 (inaudible) the SPVs and not to clearing

19 banks?

20 MR. SUCKOW: It could be -- a

21 significant chunk of this, I can't be

22 exact, but a significant chunk is related

23 to clearing banks.

24 SPEAKER: Okay. Thank you.

25 MR. MARSAL: It would be captured in



2 structures and those structures are

3 securitized (inaudible) and collateral

4 (inaudible) clearing bank.

5 SPEAKER: John (inaudible) from

6 (inaudible). First a question on repo and

7 then I'd like to go back to the

8 derivatives. Can you tell us on the repo

9 claims for accounting purposes were the

10 repo claims that were intercompany

11 accounted any differently than the

12 third-party repo claims?

13 MR. FOX: We accounted for them the

14 same way in the latest MOR statements where

15 we have offset the repo claim against the

16 loan for purposes of the balance sheet

17 presentation.

18 SPEAKER: And as a follow-up, when

19 repo was done intercompany, let's say a

20 repo asset, would any collateral move or

21 was it just kept somewhere within the

22 estate?

23 MR. FOX: Collateral would be held

24 by the counterparty, so we don't know if

25 any of that collateral moved, per se, so if



2 it was pledged -- if it was repoed through

3 LBI, that's information that we need to get

4 from LBI.

5 SPEAKER: Understood. Back to the

6 derivatives then, of the 27 billion,

7 (inaudible) 40 percent are facing SPVs. Of

8 the remainder of them, can you give us a

9 feel for what dollar amount are open

10 transactions? I think it was something

11 like 9 billion of prior exposure.

12 MR. EHRMANN: Based on the basis of

13 the 27 billion, it's about 30 percent.

14 SPEAKER: 30 percent would be open?

15 And if you think about that same --

16 MR. EHRMANN: More like 20 percent.

17 SPEAKER: And of the same amount of

18 derivatives that are not facing SPVs, can

19 you give us a feel for what percent of that

20 are (inaudible) derivatives as opposed to

21 commodities and so forth?

22 MR. EHRMANN: No, I can't.

23 SPEAKER: And of the 20 percent that

24 are still open, can you give us a feel

25 whether that is interest rates, commodities



2 or something different?

3 MR. EHRMANN: I think the important

4 piece in the open population is to know

5 what portion of the population the value

6 has been locked in and I think that we feel

7 that probably 30 percent of the value has

8 been locked in through hedges or other

9 mechanisms and we are working on locking in

10 the remainder in the next coming weeks.

11 SPEAKER: So just to clarify, the

12 20 percent that's open, 30 percent of that

13 or 6 percent of the total?

14 MR. EHRMANN: Yes.


16 SPEAKER: (Inaudible) with Elliot.

17 40 percent of the value of the derivative

18 facing SPVs, can you tell me how much of

19 that is rates and how much of that is CDS?

20 MR. EHRMANN: I think that question

21 was just asked. I don't have the

22 information with me.

23 SPEAKER: I mean, I believe that

24 back in May there was a disclosure that

25 3.6 billion of the CDS value was facing



2 SPEs. Is it fair to still think about that

3 in terms of this 40 percent split?

4 MR. EHRMANN: I am not sure what

5 disclosure you are referring to when you

6 say "back in May."

7 SPEAKER: I'm not sure where it is.

8 MR. MARSAL: I just really believe

9 that you need to be patient until mid

10 August, get the breakdown of what we have

11 in mid August, and then to the extent that

12 that's not satisfactory, give a call to

13 Daniel and we, to the best of our ability,

14 without sharing insider information, will

15 try and clarify that schedule for you.

16 MR. EHRMANN: The vast majority is

17 CDS. I just don't want to give you a

18 percentage.

19 MR. MARSAL: I know where all of

20 this is going. You know where it's going.

21 I just hate giving you parts of information

22 like this. You gotta wait another 30 days.

23 You are going to have hopefully a much

24 clearer picture than you have today.




2 SPEAKER: Tim (inaudible) from

3 (inaudible). I have got a couple of

4 questions. First of all, where do the

5 assets on the sub participation of LCPI

6 show up in the schedules (inaudible)?

7 MR. MARSAL: LCPI?

8 SPEAKER: Yes, the sub participation

9 (inaudible).

10 MR. MARSAL: I am not sure -- I

11 still -- a little slower for the reporter.

12 SPEAKER: Where do assets on sub

13 participation at LCPI show up in these

14 operating reporting schedules?

15 MR. FOX: I don't think -- can you

16 rephrase your question a little

17 differently. I'm not sure we understand

18 the --

19 SPEAKER: Any assets that are

20 subparted out to the third parties by LCPI.

21 MR. FOX: If LCPI is the legal

22 holder of the asset, then it's shown on

23 LCPI's books and records, so you are asking

24 if there are any participations, economic

25 participations for third parties?



2 SPEAKER: Yes.

3 MR. FOX: That's what you are

4 asking?

5 SPEAKER: Where does it show up?

6 MR. LAMBERT: If it's a funded

7 participation, it shows up on the legal

8 entity that actually funded that

9 participation and that would be the same

10 case for any unfunded liabilities.

11 SPEAKER: All right. And then just

12 a quick follow-up. I think you mentioned

13 that the joint real estate assets, LCPI,

14 LBHI, is that the same for the private

15 equity assets?

16 MR. FOX: No. Private equity assets

17 are held by LBHI and also held by a

18 non-debtor sub known as LB1 group, as well

19 as a few other non-debtor subs.

20 THE WITNESS: Thank you.

21 SPEAKER: Scott (inaudible) from

22 (inaudible) Partners. Regarding the

23 40 percent of the derivatives involved in

24 SPEs, is it fair to say that that's mostly

25 at LBHI?



2 MR. EHRMANN: Yes.

3 MR. MARSAL: Yes. If you look at

4 the schedule, page 21, LBSF, the receivable

5 is 21.7 and 27.6.

6 SPEAKER: Jeff (inaudible) from

7 Deutsche Bank. When you guys net out the

8 assets that were pledged to repos in the

9 most recent schedules, were those done on

10 book basis or some estimate of market

11 value?

12 MR. FOX: The netting of the repo

13 assets were done on a book basis. We don't

14 have a current market valuation for those

15 situations.

16 SPEAKER: Okay. Would there be

17 potentially any deficiency claims

18 associated with those?

19 MR. FOX: There could be, yes, there

20 could be some deficiency claims if it went

21 that way. It's possible.

22 SPEAKER: And on the 60 percent away

23 from the SPEs, can you give us any big

24 buckets as far as counterparty type? Is

25 there a lot of monoline exposure there as



2 opposed to corporates, broker/dealers?

3 MR. EHRMANN: Most of the trades

4 were with major financial institutions.

5 35 percent of the trade population was with

6 what we call big banks.

7 SPEAKER: The only reason why I ask

8 is I thought those guys would have posted

9 collateral on almost a nightly basis, so

10 any receivable would have more likely been

11 due from someone not posting collateral

12 regularly.

13 MR. EHRMANN: A lot of the -- as a

14 result of the bankruptcy and the

15 termination right that the counterparty

16 has, a lot of those receivables turned into

17 payables.

18 SPEAKER: Thanks a lot.

19 SPEAKER: Michael Stern from

20 (inaudible). Not to belabor this issue too

21 much farther, but I just want to make sure

22 I understand clearly, whatever estimate you

23 guys have internally now for recovery,

24 whatever number will end up being the

25 estimated recovery in the schedules that



2 come out in August, will that take into

3 account all three of the factors that you

4 talked about, the SPE issue, the set-off

5 issue and the termination issue where your

6 best estimates in the aggregate of those

7 things will come out, or will they assume

8 that what people have asserted is where you

9 start and then you get some recovery after

10 that?

11 MR. EHRMANN: What we will try and

12 provide is realizable value (inaudible).

13 SPEAKER: (Inaudible) termination

14 disputes and all of the other factors,

15 where do you think those things will come

16 out on a conservative basis at the end of

17 the day?

18 MR. EHRMANN: That's correct, with

19 the caveat that we are going to try to

20 protect our leading positions as much as we

21 can in order to enhance that recovery.

22 SPEAKER: Okay.

23 SPEAKER: Joe Jackson from

24 (inaudible). My question is related to the

25 $50 billion intercompany receivable at LBHI



2 that you mentioned on a net basis. Could

3 you let us know when that disclosure is

4 going to be available, how you net to get

5 to 50 billion? Because as I look at it,

6 there is $150 billion receivable listed on

7 the schedules as amended as opposed to the

8 same date as the original schedules, and

9 then there is a $90 billion payable, some

10 of which is to the entity BV. If you even

11 just took 150 minus that 90, it still

12 remains $60 billion, which is in excess of

13 the 50. Not only that, but the payables

14 don't always relate to the same entities

15 the receivables are due from, so it seems

16 like the aggregate balance should actually

17 be significantly in excess of 50.

18 MR. MARSAL: It's an incomplete

19 story we are given. Our focus has been

20 generation of cash and focusing on the

21 illiquid assets that we have within our

22 control. Obviously we are coming to grips

23 with that and getting smarter and smarter

24 and we know what we have to do with those

25 assets. Now our focus of attention has to



2 go to the intercompany. What we are trying

3 to say to you in a nice way to the other

4 receivers, though, to you about the other

5 receivers is that the success of our

6 understanding the situation on the

7 intercompany largely depends on the

8 cooperation and the transparency that we

9 have from the other receivers, in

10 particular, LBI and LBIE. To the extent

11 that we have that transparency and we have

12 that assistance, then, in fact, we can

13 address your intercompany questions,

14 because those are the two largest players

15 out there, two of the larger players out

16 there that we today do not have a handle

17 on. Now, it hasn't been an issue to date,

18 because that hasn't been the focus. The

19 focus has been on the assets, the illiquid

20 assets and the collection of cash. Now

21 that focus is changing, so now we have to

22 focus not on the derivative receivables,

23 but now we have to focus on the derivative

24 payables. We have to focus on the

25 intercompany receivables due to and due



2 from. It's just a different stage of the

3 case. So we are going to get a lot smarter

4 on the intercompany, but we are nowhere

5 near there (inaudible).

6 SPEAKER: Do you anticipate using a

7 similar methodology where you have a

8 reserve against the intercompany

9 receivables or is that not --

10 MR. MARSAL: We haven't even talked

11 about that.

12 SPEAKER: Okay. And then last

13 question. In terms of the derivatives on

14 the updated schedules and the updated MORs,

15 I think October 2nd and October 4th, it

16 listed the derivative assets and

17 liabilities as being updated to the extent

18 that you had updated valuations or updated

19 to the extent that you had received

20 termination notices. Could you give us an

21 idea of percentage of that book that was

22 either updated for updated values or that

23 was terminated, i.e., percentage of the

24 assets that, for instance, LBSF, I believe

25 it went from 20 billion to around



2 $21 billion, what percentage of those

3 derivatives was updated subsequent to 9-14

4 or 10-2 or 9-30?

5 MR. EHRMANN: So the vast majority

6 is (inaudible) the disclaimer points out,

7 all of the trade population (inaudible)

8 thousands which represents approximately

9 85 percent of the trade population, we

10 actually did not update the valuations.

11 Those are September 12th valuations. For

12 the remainder, I will say two-thirds of

13 those we had updated historical information

14 that we got through our transition services

15 agreement with Barclay's. Those qualify as

16 imperfect valuations, but they were

17 valuations.

18 SPEAKER: And some of them related

19 to terminated values?

20 MR. EHRMANN: Exactly. Some of them

21 related to terminated valuations, but we

22 would have then used the valuation that we

23 got through our transition services

24 agreement with Barclay's.




2 SPEAKER: (Inaudible). Just a

3 follow-up question on private equity real

4 estate assets. On the private equity

5 assets you said that a majority of the

6 assets are actually controlled by LBHI and

7 LB1. Could you provide a rough estimate of

8 roughly how much is controlled by LBHI

9 vis-a-vis LB1 and is LB1 a hundred percent

10 owned by LBHI?

11 MR. McCARTHY: With regard to

12 private equity assets and going down

13 through the entities here for the assets

14 classes, in the private equity group, which

15 is basically the Lehman Brothers, this is

16 on page 15, on the private equity group

17 those are the former Lehman Brothers

18 private equity funds, independently

19 operated funds, (inaudible) management

20 companies there. Those (inaudible)

21 controlled by LBHI, but through non-debtor

22 vehicles that are sole purpose vehicles.

23 So I would say that those are primarily

24 controlled by LBHI at that point. The

25 direct investments, the majority of those



2 direct investments are through LB1 Group

3 and the majority GP and LP investments are

4 through LB1 group. The Asian investments

5 are through a variety of other subsidiaries

6 and, again, most of those are non-debtor

7 subsidiaries (inaudible). The Asian

8 investment is not controlled by us or by

9 the receivers, they are primarily KPMG

10 controlled assets, which is at the bottom.

11 SPEAKER: Okay. Thanks. And could

12 you provide a break-out of real estate

13 assets?

14 MR. McCARTHY: I don't have on the

15 real estate side a break-out. I can tell

16 you that LCPI as a general matter was used

17 for the straight bank debt. (Inaudible)

18 where the equity investments were, I don't

19 have with me the break-out of (inaudible).


21 SPEAKER: I am (inaudible). My

22 understanding is a number of the U.S.

23 debtors that were produced as subsidiaries

24 of LBI were transferred into ALI, Inc. at

25 the end of September. I would be



2 interested in how you think about any claim

3 on value of ALI or the U.S. debtors within

4 ALI moving to LBI? There were some U.S.

5 debtors who were previously subsidiaries of

6 LBI that were then transferred back in

7 September to ALI, Inc. My understanding is

8 there is a note held by LBI against ALI. I

9 would be interested in your thoughts on

10 potential value that might go to LBI from

11 ALI or the U.S. debtors as (inaudible) that

12 note.

13 MR. WAISMAN: The note you refer to

14 (inaudible) to LBI for the transfer of

15 those subsidiaries contemplates a valuation

16 of those assets and entities that were

17 transferred. That valuation has not been

18 completed, so we can't speculate as to what

19 value may or may not be transferred as a

20 result.

21 SPEAKER: And that valuation is

22 against ALI, is it potentially against some

23 of the value from the new ALI subs that

24 were previously LBI?

25 MR. WAISMAN: The valuation



2 contemplated is a total valuation of all of

3 the entities slash assets that were

4 transferred to (inaudible).

5 SPEAKER: Is there an estimate of

6 when the valuation of that note might be

7 completed and is there going to be

8 disclosure on it?

9 MR. WAISMAN: There will be

10 disclosure when it is completed, there

11 definitely will be disclosure, but we don't

12 have an estimate at this point.

13 SPEAKER: So it's unclear whether

14 value from ALI or the U.S. subs that are

15 part of that will (inaudible) LBI?

16 MR. WAISMAN: That's right. It is

17 unclear whether there will be any value

18 transferred or what -- if there is value,

19 what the rate will be. There is no

20 estimation.


22 SPEAKER: Rubin (inaudible) from

23 Capital Management. In one of its filings

24 LBI mentions that if there are potential

25 claims from its former subsidiaries,



2 presently (inaudible) subsidiaries were

3 subordinated, some of those subsidiaries

4 will be (inaudible) creditors. Is it your

5 understanding that those claims are

6 actually subordinated at LBI?

7 MR. WAISMAN: You are referring to a

8 filing. Is there a specific filing you are

9 referring to?

10 SPEAKER: In -- yes. (Inaudible).

11 MR. WAISMAN: I think you are

12 referring to a report filed by the SIPA

13 trustee for Lehman Brothers, Inc.

14 SPEAKER: That's correct.

15 MR. WAISMAN: So not (inaudible) a

16 filing that these estates made. The SIPA

17 trustee refers to certain subordination

18 agreements. Obviously those are agreements

19 that (inaudible) are reviewing. We will

20 have to come to a determination as to their

21 enforceability.

22 SPEAKER: Understood. So you have

23 no opinion as of yet as to whether that

24 subordination or -- let me rephrase it. In

25 many of those schedules you have filed



2 those include former subsidiaries of LBI

3 and you present some intercompany claims

4 against LBI. Is it your understanding at

5 this point that any of those are

6 subordinated or is it your understanding

7 that they are not subordinated as

8 represented in any of the schedules?

9 MR. WAISMAN: I think it's fair to

10 say that it is not our understanding either

11 way. We are reviewing the subordination

12 agreements and the situation and we will

13 come to a conclusion.

14 SPEAKER: Thanks. Last follow-up

15 question of that. Inasmuch as the claim is

16 that there was a subordination agreement,

17 can you (inaudible) if there was

18 subordination or was there any

19 consideration given to the subsidiaries,

20 because it sounds like potentially

21 subordination was to satisfy regulatory

22 requirements at LBI, (inaudible) which

23 accrues to the owner of LBI, which is LBHI.

24 Since these were subsidiaries of LBI, was

25 there any (inaudible) consideration



2 provided for subordinated claims as far as

3 you know?

4 MR. WAISMAN: That is an excellent

5 question. It's certainly one of the issues

6 that we would be looking at in reviewing

7 the subordination agreements and their

8 enforceability.


10 MR. VELEZ-RIVERA: Anyone else?

11 Next question.

12 SPEAKER: Paul Goldschmidt

13 (phonetic) from Kings Street. In the filed

14 schedules there was a table Other

15 Transfers, it was 10A, and it included cash

16 of about 7 billion in JPMorgan, 1.7 billion

17 of money funds and 8 billion of securities

18 that had been transferred to JPMorgan in

19 the last six months. Can you explain why

20 that was included in the schedules and do

21 you mind just elaborating on what these

22 transfers are? There is one from Citigroup

23 of 2 billion and Bank of America

24 (inaudible) the litigation, 500 million.

25 MR. WAISMAN: I believe the schedule



2 you are referring to requires the debtor to

3 list all transfers of property within a

4 certain period of time. It was the

5 debtor's belief that that information that

6 was put on the schedule was responsive to

7 the question asked by the schedules and

8 that's why it was listed on the schedules.

9 SPEAKER: The weird one to me was

10 the JPMorgan, the 8 billion, just because

11 there were so many other transfers of other

12 counterparties. Why was the 8 billion

13 highlighted?

14 MR. WAISMAN: That was a significant

15 transfer of property of the estate or of

16 Lehman Brothers occurring within the

17 specified period that we felt we had an

18 obligation to list in response to the

19 question that the schedule was asking.

20 SPEAKER: And is that outside of the

21 JPMorgan pledges that are in the

22 presentation?

23 MR. WAISMAN: I believe that the

24 presentation encompasses some of the

25 collateral posted to JPM, but whether all



2 of it was -- the schedule is simply in a

3 certain time span, I believe it was the 90

4 day schedule you are referring to, and

5 this -- what was presented today reflects

6 ultimately all that was posted without

7 regard to time, so there may be a slight

8 disconnect there, but they do overlap.

9 SPEAKER: And Bryan, obviously I

10 don't want to put words in your mouth, but

11 when you talk to the Wall Street Journal or

12 talk about the assets in the estate, you

13 often talk about the real estate assets and

14 you sort of ignore the pledges when you

15 talk about them. Is that because you are

16 expecting them to be unpledged or --

17 MR. MARSAL: No. What has happened

18 is the moneys you are talking about in the

19 schedule, assets are cash that was pledged

20 within a 90-day period to JPMorgan,

21 Citibank and others for clearing bank or

22 other issues that would come out. That was

23 done within the last -- the 90 days prior

24 to the proceeding. JPMorgan believes that

25 we owe them $1.3 billion against what they



2 call a clearing overdraft, 1.3 billion.

3 Against that clearing overdraft of

4 1.3 billion is all these pledged assets

5 which remain, so I think they are -- in our

6 view they seem to be very well

7 collateralized, so when we look at the

8 pledged assets, the reason we refer to

9 them -- I think there is what, John, 6 or 7

10 billion of pledged assets against it,

11 approximately?

12 MR. SUCKOW: Yes.

13 MR. MARSAL: 6 or 7 billion of

14 pledged assets against the 1.3 billion that

15 they claim we owe them, and we are not

16 agreeing that we owe that 1.3, by the way,

17 but in any event we believe there is

18 substantial value going to flow to us and

19 that's why we were managing those assets

20 (inaudible).

21 SPEAKER: And is the cash on top of

22 the pledged assets?

23 MR. MARSAL: Yes.

24 MR. SUCKOW: Just to be clear, the

25 1.3 is netted cash so it was 8 billion less



2 6.7 billion.

3 SPEAKER: And have you done work on

4 what you think --

5 MR. SUCKOW: As I said earlier, we

6 could spend a lot of time talking about

7 legal theory. I really don't think it

8 would benefit this group too much.

9 MR. VELEZ-RIVERA: That's it. Next

10 question.

11 SPEAKER: Bob Ryan with Elliot

12 (inaudible). I think there is -- given the

13 $16 billion figure that was tossed out

14 there, I think there is some risk that the

15 counterparties that we are facing, maybe in

16 this room, when they read that number they

17 may dig in their heels from a litigation

18 perspective, concluding that, hey, we are

19 home free, Lehman doesn't think they can

20 collect on the claim. I think it would be

21 worthwhile for the estate, if it chose to

22 set the record straight on the record,

23 about the lengths to which Lehman is

24 prepared to go to protect its rights and to

25 enforce its claims (inaudible) its facing



2 SPVS or other counterparties.

3 MR. VELEZ-RIVERA: Your question is?

4 SPEAKER: To what lengths will

5 Lehman go to protect its rights on the

6 claims?

7 MR. MARSAL: Just assume whatever it

8 takes. Whatever it takes. I mean, we are

9 going to defend the rights of the estate

10 and I would assume -- unfortunately, I

11 shouldn't have thrown the number out, but

12 it's out there. My bad. We now will beat

13 that number.

14 SPEAKER: You can change it if you

15 want.

16 MR. MARSAL: We will beat that

17 number. The people who have provided the

18 number haven't missed a number yet.

19 MR. WAISMAN: I think it is also

20 fair to say that there are a significant

21 number of people devoted to the task from

22 A&M, from Lehman, and a very large team at

23 Weil Gotshal as well spending a significant

24 amount of time focused on the issues and as

25 Bryan points out they will (inaudible).



2 MR. EHRMANN: One last point on

3 that. I think it's also important to note

4 that currently we have settled 8 percent of

5 the population, (inaudible) of the 106,400

6 counterparties. One of the reasons for

7 that is we are fighting for every single

8 dollar tooth and nail and I think it's a

9 message that the street has -- has been

10 (inaudible) by the street.

11 SPEAKER: Do some of those claims

12 include claims that otherwise absent

13 settlement would have been reserved

14 against?

15 MR. EHRMANN: Had they been

16 reserved, they would have been reserving in

17 the values that we received, i.e., fair

18 value or (inaudible).


20 SPEAKER: John (inaudible), Goldman

21 Sachs. Could you just talk about your best

22 guess the timing for resolution of all the

23 derivative claims? Can you just talk about

24 milestones that can occur before initial

25 distribution can actually be made?



2 MR. MARSAL: Well, what you see in

3 that last schedule, in terms of timetables,

4 I don't think realistically that until the

5 third anniversary of this case, as

6 disappointing as that might be. I think

7 your asset picture will be clear by the

8 second anniversary of the case. I don't

9 think your derivative picture will be clear

10 until the third anniversary of the case,

11 and as far as intercompany is concerned, we

12 just don't know. We don't know how quickly

13 the other receivers are going to approach

14 things and whether or not transparency --

15 we also don't appreciate the complexity of

16 their problems, so because we have no

17 transparency -- I'm not casting any

18 aspersions at anyone. I am just saying we

19 don't know. We are in the dark on LBI and

20 we are really behind the 8 ball on LBIE.

21 Until we have those answers, this thing

22 will go on and on and on, but in terms of

23 the derivatives, I would say the third

24 anniversary of the case would be our best

25 guess today.



2 SPEAKER: Can a distribution occur

3 before complete resolution of that or

4 (inaudible) --

5 MR. MARSAL: That has been discussed

6 with the Unsecured Creditors Committee,

7 it's just a topic, so you should -- I am

8 going to ask you to direct your comments to

9 the Unsecured Creditors Committee and their

10 counsel if you have got something to put

11 on, but I certainly would not be opposed if

12 we can legitimately -- if we could put a

13 reasonable box around the claims,

14 particularly at subsidiary levels. I'm not

15 sure it's going to be possible at Holdings,

16 but it's possible at a subsidiary level

17 they can do that.

18 SPEAKER: And then last question,

19 going back to non-debtor subsidiaries that

20 hold private equity and other principal

21 investing assets, just entities such as LB1

22 Group, how many of those entities actually

23 have third-party liabilities where those

24 asset values actually (inaudible) back up

25 to the holding company?



2 MR. McCARTHY: There is actually

3 very few third-party liabilities with

4 regard to debt at any of those entities.

5 The largest liability listed in the

6 right-hand column, which is the (inaudible)

7 commitments, so those have to be considered

8 liabilities. So related to that, that

9 number has been reduced from 4.4 billion as

10 of the bankruptcy date down to what we

11 listed here at 2.7, so as Bryan mentioned

12 earlier, we are working very diligently on

13 that number and managing that down.

14 MR. MARSAL: The big threat to the

15 valuations on the private equity portfolio

16 is aside from market risk, which is the

17 market deteriorating, the big threat to us

18 is not being able to fund our obligation

19 and thus suffering a severe dilution

20 (inaudible). We have been -- that's the

21 task at hand, is how to manage that in a

22 way that's sensible for the estate given

23 what we have in investment exposure, and

24 yet in a liquidating situation putting more

25 money into a private equity fund is very



2 difficult for us to do. I mean, it's very

3 difficult to swallow on one hand, but the

4 losses are difficult to swallow on the

5 other, so that balancing act is really --

6 is a major challenge.

7 MR. VELEZ-RIVERA: Anyone else?

8 Ladies and gentlemen, thank you.

9 The meeting of the creditors is concluded.

10 Thank you again.

11 (Time noted: 12:07 p.m.)

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1

2 C E R T I F I C A T E

3

4 STATE OF NEW YORK )

5 ) ss.:

6 COUNTY OF NASSAU )

7

8 I, KRISTIN KOCH, a Notary Public

9 within and for the State of New York, do

10 hereby certify that the within is a true

11 and accurate transcript to the best of my

12 ability of the proceedings held on July 8,

13 2009.

14 That I am not related to any of the

15 parties to this action by blood or

16 marriage; and that I am in no way

17 interested in the outcome of this matter.

18 IN WITNESS WHEREOF, I have hereunto

19 set my hand this 9th day of July, 2009.

20 -------------------------

21 KRISTIN KOCH, RPR, RMR, CRR

22

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341 creditors meeting transcript

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