Lehman blocks Russian accounts Action in Britain claims two large banks defaulted on debts of $113 million

Global economy

September 25, 1998|By BLOOMBERG NEWS

MOSCOW -- Lehman Brothers Holdings Inc. won a court order yesterday blocking the British bank accounts of Inkombank and Unexim Bank, two of Russia's biggest banks, claiming they had defaulted on obligations of almost $113 million.

Lehman claimed in documents filed in the High Court in London that Inkombank defaulted on an $87 million payment due Sept. 11 and Unexim Bank defaulted on a $25.9 million payment the same day.

Lehman is among dozens of foreign private creditors, including Credit Suisse First Boston and Deutsche Bank AG, trying to salvage anything they can from investments that collapsed after the government defaulted on $40 billion of its debts in August.

That left many Russian banks, the biggest holders of the government bonds, unable to meet their own obligations.

Inkombank said Lehman's action "can hardly be considered a rational way out of the present situation. Lehman Brothers is trying to use force to get ahead of other creditors and to be the first seizing everything it can."

The Russian government's creditors also are trying to recover whatever they can. A delegation led by Deutsche Bank representing 17 foreign banks met with the government in Moscow yesterday.

Russian officials said they're willing to offer new terms on the defaulted bonds, after first trying to force bondholders to accept payment of 10 percent or less.

The Russian officials also warned yesterday that the government could default on the next payment on its estimated $38 billion of debts to foreign creditor governments.

The debts owed by Russian banks to Lehman and other foreign banks were mainly in the form of currency forward contracts obliging Russian banks to deliver as much as $1.5 billion in exchange for rubles by Sept. 15.

The collapse of the ruble left most unable to do so.

The government also imposed a 90-day moratorium barring banks and companies from paying foreign debts.

"The banks are in a desperate situation," said Max Gotbrod, a partner at U.S. law firm Baker & McKenzie, based in Moscow. "They had their assets in government bonds, they were forced into a breach of contract, and if they do anything about it they will be fined by the central bank."

Inkombank said it failed to cover currency forward contracts that came due Sept. 15, after the value of the ruble made the contracts too expensive.

Inkombank also said it was prohibited from covering the contracts by the government's moratorium on foreign debt payments by Russian banks and companies. Inkombank refused specify the amount of money on deposit in the British accounts seized.

Unexim Bank is Russia's fourth-largest private bank by assets; Inkombank is second-largest.

The majority of losses were Lehman's clients' funds, Lehman said. The losses to Lehman and the reserves set aside for those were included in Lehman's earnings reported yesterday.

Lehman Brothers reported third-quarter profit fell 23 percent from a year ago; trading revenue plunged because of losses in Russia and other emerging markets.

BTC Lehman, the fourth-largest U.S. securities firm by capital, said yesterday that net income for the quarter ended Aug. 31 fell to $151 million, or $1.10 a diluted share, from $197 million, or $1.30 a share, in the same quarter last year.

Pub Date: 9/25/98

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