Lehman Reaction, Now Only a Trickle, Could Flow

Early regulatory filings suggest that the fallout isn't severe — yet.

Despite its assertion that it was unaffected, A&P noted that a Lehman subsidiary in Europe was involved in a December 2007 financing using convertible debt. A&P said it would not including the 3.2 million borrowed shares when calculating its per share results until it knows if the Lehman unit can return the shares.

Louisville-based Humana filed an 8-K noting that the fair value of its investment portfolio as of Friday was $6.6 billion, but that it held direct debt securities of Lehman valued at $25.7 million, as well as $4.9 million in AIG bonds.

Minneapolis-based Ameriprise Financial said in an 8-K that it owns $157 million of Lehman bonds, noting that they were currently trading at approximately 35 percent of par, giving the company an unrealized loss of approximately $102 million. The company said it had offered to purchase, par plus accrued interest, $50 million in Lehman Brothers commercial paper currently held in money market mutual funds managed by Ameriprise’s subsidiary, RiverSource Investments LLC. Like Lehman bonds, the commercial paper is currently trading at 35 percent of par, with an unrealized loss position of approximately $33 million. Ameriprise said it stands ready to purchase up to an additional $50 million in commercial paper to held in RiverSource’s money market funds in order to maintain their $1 net asset value.

Ameriprise also disclosed that it owns approximately $118 million in AIG credit exposures, and $65 million in subordinated notes issued by Washington Mutual.

In a 6-K filing, Toronto-based Sun Life Financial said it held $334 million par value of Lehman bond securities and approximately $15 million net value of Lehman derivative instruments, adding that it held collateral security for its net derivative exposure to Lehman. Sun Life said that under Canadian accounting rules, when a bond backing liabilities is written down in value or defaults, the actuarial assumptions about the cash flows required to support the liabilities will change, resulting in a strengthening of reserves with a corresponding charge to income. Sun Life did not provide an estimate of the charge it would take.

Sun Life was not the only foreign firm announcing exposure to Lehman. Tokyo-based Mizuho Financial Group filed two 6-Ks, the first noting that it had exposure to Lehman, and another a few hours later lowering its earnings estimates “due to additional credit-related costs expected to be recorded in relation to irrecoverable claims to Lehman Brothers Holdings Inc.” The company reported that it had 10 billion yen worth of credit-linked loans that contained credit exposure to Lehman and 1.8 billion yen worth of straight bonds issued by Lehman.

Likewise, Aegon, based in The Hague, the Netherlands, said it had reduced its exposure to Lehman throughout the year, but that it was still exposed to some 265 million Euros. The company said it expected the ultimate effect of Lehman’s default would be lower as a result of taxes and recoveries on claims.

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