Frozen Margin Calls
Margins Calls on Frozen Assets
The motivation to multi-prime increased more this week as hedge fund managers learn they may have to meet margin calls on securities which are frozen within Lehman Brothers. Here is a short excerpt from a news piece on this topic:
Oct. 15 (Bloomberg) -- Lehman Brothers Holdings Inc.'s hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago.
Lehman's London-based prime brokerage has about 3,500 active clients including hedge funds that own about $45 billion in securities, Steven Pearson, the partner at PricewaterhouseCoopers responsible for unraveling Lehman's U.K. operations, said in an interview. They hold an additional $20 billion in short positions, or bets that prices will fall.
While investors are largely unable to access their Lehman accounts, the value of the securities continues to fluctuate along with the markets. The clients may be required to put up more collateral if the value of those securities drops, a process known as a margin call.
``If your bank fails, you still have to pay your mortgage,'' Pearson, 43, said in an interview in Lehman's Canary Wharf office. ``Who is the holder of the risk of the securities? The hedge funds. If the value of the securities fell, they have to meet margin calls.'' Source