Lehman Brothers Holdings Inc. Hires Numerix for Derivatives Valuation Project

One year after the fall of Lehman Brothers, the bankrupt firm, Lehman Brothers Holdings Inc. (LBHI) said it hired Numerix to provide independent real-time valuations for LBHI's derivatives book. The signing of Numerix is a critical step in unwinding LBHI's derivatives book and the ultimate reconciliation of outstanding creditor claims, according to today's release.

The selection of Numerix was approved by the U.S. Bankruptcy Court, Southern District of New York in Manhattan in April of 2009.

"Lehman performed an extensive search to identify a partner that could provide the analytics and technology capable to value the depth and breadth of derivatives products that were transacted in the Lehman derivatives portfolios," stated Daniel Ehrmann, managing director of Alvarez & Marsal and co-head of LBHI's Derivatives Asset Team. "It became clear that Numerix was best positioned not only to provide LBHI with the valuations we need to resolve derivatives claims, but also to flex the market inputs and transaction terms to ensure that those valuations are reasonable," stated Ehrmann in the release.

According to a Numerix spokesman, 70 percent of the derivatives are flow products and 30 percent are exotics across a variety of asset classes— interest rates, mortgages, etc. "Really, it's all about maximizing recovery for the creditors," says the Numerix spokesman in an interview.

LBHI selected Numerix to accelerate the resolution of intercompany accounts and systems and resolve derivative claims, noted the release. The Numerix team of 40 on-site financial engineers is sitting next to the LBHI traders and risk managers to provide ad hoc, real-time valuation services, along with software support and project management. One of the challenges is that LBHI has about 20 legacy systems that are running independently there.

Numerix has two major tasks, according to a spokesman. Task No. 1 is getting all these legacy systems on Numerix's front-end platform — Numerix Portfolio. Task No. 2 is providing real-time valuation on a million outstanding derivatives contracts, across every asset class, representing 6,500 counterparties.

For Numerix, sorting out the valuation of the LBHI derivatives book could be the assignment of a lifetime. "Numerix brings the best capabilities and focus to providing LBHI with a single platform and the analytics necessary for the ultimate resolution of its intercompany accounts and the integration of existing legacy systems," stated Steven R. O-Hanlon, president and COO of Numerix in the release. "We are delighted to be partnering with the derivatives team on this important and exciting mandate," stated O'Hanlon.

According to the Numerix spokesman, there is still a live trading component to the derivatives. The net present value of $5 billion outstanding has to be valued on a daily basis. "When we started there were about 25,000 outstanding trades and we've whittled that down to about 2,500," notes the spokesman.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio