When asked directly, Joseph Gentile, a former FID Finance executive who reported to Gerard Reilly, did not believe that Lehman’s motive for undertaking Repo 105 transactions was financing. Gentile stated unequivocally that no business purpose for Lehman’s Repo 105 transactions existed other than obtaining balance sheet reliefGentile said that he received his “Repo 105 education” sometime near the end of Lehman’s 2006 fiscal year from Ed Grieb, Lehman’s Global Financial Controller who reported directly to then-CFO Chris O’Meara. According to Gentile, Grieb explained that Repo 105 transactions were a balance sheet management mechanism: “a tool that could be use d to reduce Lehman’s net balance sheet.” Gentile recalled that “Repo 105 was a vehicle that Grieb owned and he was using it to take my balance sheet away." When the Examiner asked for further explanation of that statement, Gentile said that if FID had “excessions” in its balance sheet, Grieb would authorize additional Repo 105 capacity to alleviate potential breaches of the balance sheet limit. Gentile explained that two ways existed for FID to make its balance sheet targets where excessions existed: by selling assets or by engaging in Repo 105 transactions. Similarly, Matthew Lee said there was no legitimate business purpose for Repo 105 transactions. In his view, Lehman’s Repo 105 practice was for “window-dressing the balance sheet
to make the credit rating higher.”
First, it is beyond a reasonable doubt that 105s were merely used for window-dressing as the following chart from the Examiner demonstrates.
Second, we urge regulators to promptly sequester Mr. Grieb and ask him pointed questions about not only Chris O'Meara's knowledge of Repo 105s, but what CFOs were subsequently requesting that Lehman use the same off-balance sheet book cooking vehicle.
Third, as getting information out of US banks has proven next to impossible, it is time to bring in the counterparties: Mizuho, Barclays, DB, UBS and Mitsubishi, and demand that they disclose if any other banks use or have used comparable off-balance sheet gimmicks.
Lastly, it is time for Bob Diamond to take the witness stand, and disclose just how much of a factor any potential activity on his behalf to raise Repo 105 rates into Lehman's collapse may have had. Here is the proper analogy: just as Goldman benefited the most by cranking up its AIG collateral demands on it CDO exposure, so Barclays could have easily done the same. Net result: the purchase of Lehman NA for sub-blue light special price. As the lawsuit against Barclays is set to commence imminently, we will be very curious as to what disclosure Mr. Diamond reveals under oath.