Bond investors in Lehman Brothers face an anxious few days wait to determine the losses incurred following the bank's weekend bankruptcy.
F&C, which holds Lehman bonds in two Fatima Luis-managed fixed income funds, says the complex nature of the bank’s demise has created a lot of speculation regarding bond losses – but the manager feels it is too soon to talk recovery values.
Credit rating agencies have so far offered conflicting views on recovery levels, with figures varying from 10p to 40p in the pound.
“Moodys on Monday put up a figure of around 90% and yesterday we saw totally different data come out,” F&C’s corporate affairs head Jason Hollands says.
“The important thing is not to panic and take any rash action before all the information is in front of you.”
Lehman Brothers is the sixth largest holding in the £251.2m F&C Strategic Bond fund, representing a 1.5% weighting – while the £140.1m Extra Income Bond vehicle holds a 1.48% weighting in the bank, its ninth largest holding.
Theo Zemek’s AXA Sterling Corporate Bond, the Old Mutual Dynamic Bond and the Franklin Templeton Global Bond funds also hold positions in Lehman.
Financial Express analyst Harpreet Sajjan expects bondholders to recover 30p in the pound.
However, he believes Lehman's collapse might not be all bad news for bond investors.
“Recent reports from Lehman display a total asset to debt ratio of 1.04, meaning that the fallen investment bank does have enough assets in place to fully cover its debt obligations," Sajjan says.
“Our view, therefore, is that the bank’s demise was not due to a severe loss of asset values, but down to the strong influences of poor market sentiment, causing a great decline in the bank’s market capitalisation.”
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