Bloomberg broke the story this week that Lehman Brothers Holdings Inc. is sitting on a nuclear bomb's worth of yellowcake uranium. Apparently, the bank physically acquired the uranium after a futures contract matured. It now sits in a secure storage facility in Canada. Which begs the question:How the hell did Lehman allow this to happen?
Actively traded futures contracts are typically closed out before the contract expires. This absolves the trader/firm from having to take physical delivery of the underlying commodity. It is remarkable that Lehman failed to close such a massive contract. DealBook wonders if the contract simply slipped through the cracks amidst all the chaos of the Lehman bankruptcy.
However it happened, the bankrupt bank is reportedly sitting on the uranium until prices rise; uranium has fallen for five straight months as traders expect delays to nuclear power projects in China and India, and under the expectation that Lehman could dump its stock on the market. Essentially, by holding tight Lehman depresses the very market it needs to recover.
I highlight this story because it underlines just how disastrous, and far-reaching, the Lehman bankruptcy has been. Lehman was an active commodities trader in the broker-dealer and exchange markets, and it got caught on the wrong side of a massive trade that continues to depress an illiquid market. The ripple effects of Lehman's failure haunt us in the most improbable of areas.
(photo source)
No comments:
Post a Comment