Lehman Brothers Suspended From London Commodity Trade

By Chanyaporn Chanjaroen and Alexander Kwiatkowski
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Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, was suspended from energy and commodities trading in London after Europe's biggest clearing house declared the company a defaulter.

The London Metal Exchange, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe, part of the second-biggest energy exchange, all suspended Lehman today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter.

``Lehman is an important counterparty in the commodity markets,'' Robin Bhar, a strategist at Calyon in London, said by phone. Still, the bank's positions on the LME are ``unlikely to be huge,'' he said.

Lehman was forced to file for bankruptcy after two suitors, Barclays Plc and Bank of America Corp., abandoned takeover talks yesterday. It joins Bear Stearns Cos. and other banks that couldn't survive the credit crunch.

The firm's value-at-risk to commodities, a measure of how much the bank estimates it could lose, averaged $15 million a day in the quarter ended Aug. 31, compared with $12 million in the previous quarter, according to a Sept. 10 statement.

Lehman is a so-called category 2 member of the LME and eligible to issue and clear contracts. It can't trade on the floor of the exchange. It was suspended from trading on the bourse's Select electronic platform. The LME trades copper, aluminum, zinc, nickel, tin, lead, steel and plastics.

Winding Down Business

The firm can still trade by phone, LME spokesman Thom Lant said. Each trade has to be approved by PricewaterhouseCoopers LLP, which is handling the winding down of the business, he said.

Lehman's head of European commodities is Jason Tudor, a former head of metals at Barclays Capital. He joined Lehman in 2006.

Intercontinental Exchange suspended Lehman's access to its ICE Futures Europe trading facilities. The exchange trades Brent crude oil, gasoil and other energy futures. Lehman also trades emissions on ICE.

Liffe has commodities trading in coffee, sugar, cocoa in London. The move does not apply to trading in Paris because there has been no statement from LCH.Clearnet SA to say Lehman is in default, Liffe spokesman James Dunseat said.

The London clearing house ``is managing the markets in an orderly manner,'' LCH.Clearnet spokeswoman Rachel Harper said today by phone.

Lehman remains a clearing member at the New York Mercantile Exchange, the bourse said today.

Gold Impact

The London Bullion Market Association expects no impact from the bankruptcy of member Lehman, Chief Executive Officer Stewart Murray said. The LBMA, representing the wholesale gold and silver market in London, has 57 ordinary members this year, up from 55 last year and 52 in 2006, Murray said.

``They're ordinary members, they're not market makers, they're not clearers,'' Murray said by phone from London today. The two banks' weighting within the London bullion market was ``quite small given the many number of ordinary members.''

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net; Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net