Jones and Fairbairn Interviewed, Jones Quoted on Global Impact of Lehman Bankruptcy

O’Melveny partners Evan Jones and Mark Fairbairn were recently interviewed by reporters from China Business News about the effects of Lehman Brothers

Barclays' acquisition of Lehman's US business and Nomura Securities' acquisition of Lehman's Europe, Middle East, and Asia businesses were recently approved by the Unites States bankruptcy court. China Business News asked Jones and Fairbain for their thoughts on why Chinese companies have not stepped in to acquire Lehman's Asia business and to identify some of the potential challenges faced by Nomura following the acquisition. Jones replied that the US bankruptcy court, which does not place restrictions on the acquisition of financial institutions, will certainly encourage Chinese companies interested in purchasing the assets at a higher price, and that inasmuch as Chinese companies are not attempting to participate in the purchase, it is by choice. He also pointed out that Chinese companies have acquired shares of Barclays, which "may be considered an indirect acquisition of Lehman."Holdings’ bankruptcy filing on Asia’s financial market. The interview was published in the publication's October 6 edition and carried the headline, "Lehman Brothers' Bankruptcy is Unlikely to Have a Material Influence on Chinese Banks."

According to both lawyers, while the material impact of the Lehman bankruptcy on Chinese banks may turn out to be minimal―mainly because the amount of Lehman-related bonds they hold is relatively small―there may be other ramifications in China and certainly, globally. "The more important question is, is the failure of Lehman a symptom of a global crisis," said Jones. "I don't know how that is going to turn out or what the effect would be." Fairbain noted that the resultant economic turmoil may influence China's export-oriented substantive economy, and added that the Lehman failure holds a lesson to be learned globally: investments carry a risk.

Nomura, in Jones' view, will face the challenge of combining its commercial bank culture with the investment bank culture. Fairbairn also pointed to cultural conflict as a potential issue. “The cultural conflict…is not about national conflict, it’s about the conflict in different organizations," he said. "For example, commercial banks and investment banks adopt different investment methods and the work atmosphere varies…In addition, doing business in America and Europe is different. The cultural differences may cause quite a lot of difficulties toward merger and integration. It would be fine in London due to high transaction volumes, but this may not be so in Hong Kong.”

Asked to predict the regulatory ramifications of the Lehman failure, Jones told China Business News that while "the lesson learned by the market and government is the need for greater regulation," it is not likely, in his view, that stronger regulation is the best―or only―long-term resolution. "In 10 or 15 years we may look back and dispute whether or not the regulations worked," he said.

Jones was also quoted in “Asian Creditors in Danger Over Lehman Debts,” an article published in the October 2008 issue of Asia Law about the risks Asian creditors face under US rules if they plan to collect debts or take any action against Lehman Brothers. The article reports that under US bankruptcy court rules, an automatic stay is granted to a Chapter 11 debtor, giving the company time to reorganize, and thus preventing most efforts to collect dues or take legal actions against the company or its properties. Furthermore, these rules are broadly interpreted and the court extends its jurisdiction globally. “Basically,” Jones affirms, “creditors can’t do anything fun.” He explains that while there are exceptions to automatic stay, they are either very specific or not well-defined and require intricate analysis. “If you have assets or do business in the US, they’ll get you,” Jones warns.

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