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State treasurer says $50 million investment in Lehman recovered

CARSON CITY — Nevada Treasurer Kate Marshall announced Wednesday that her office has recovered nearly all of the state’s $50 million investment that was put at risk by the bankruptcy of the Lehman Bros. investment bank in the Wall Street crash of 2008.

The state will see full recovery from the investment by year’s end, she said.

The announcement comes two days after the sixth anniversary of the Lehman Bros. collapse, which helped push the country into the Great Recession.

Marshall said that if she had followed the advice of those pressuring her to sell the Lehman-backed bonds during the depths of the recession, the state would have seen at best a recovery of $5 million, or 10 cents on the dollar.

“The markets were acting irrationally,” Marshall said, referring to the time of the economic collapse. “The markets were very volatile. People were acting ir­rationally. And I believed, and my staff believed, that if we acted rationally and prudently, we would be able to recover this money.”

By holding onto the bonds and lining up for a share of the company’s assets in bankruptcy court, Nevada has come out even, unlike many other states that had similar investments with the company, she said.

“At the time of the bankruptcy, I promised I would do everything within my power to recover every last dollar,” Marshall said. “I am proud to announce today that the Lehman recovery efforts instituted by my office have been successful.”

Marshall, a Democrat, is finishing her second four-year term as treasurer and is running for secretary of state against state Sen. Barbara Cegavske, R-Las Vegas.

States across the country suffered losses in the Lehman Bros. collapse.

Among the affected state governments, Minnesota lost more than $56 million, Missouri lost $50 million, Oregon lost $173 million, Washington lost $130 million and Florida lost more than $465 million, according to a report from the Federal Reserve Bank of New York.

Marshall’s recovery strategy, reviewed by Nevada’s Board of Finance on July 9, 2009, involved three components:

■ Holding the Lehman bonds until the bankruptcy was completed.

■ Evaluating the market for the possible sale of the defaulted bonds at an opportune time.

■ Recovering the remaining amount through an interest-earning amortization process.

The bankruptcy proceedings yielded $13.6 million; the sale of the bonds in July brought in another $10 million. As a result, the treasurer’s office was able to recoup 46.5 cents on the dollar through the two processes.

Then, a minuscule amount of the return on the state’s general portfolio, a fraction of 1 percent, was dedicated to the remaining outstanding balance. That amortization has produced $26 million and will result in the full recovery of the $50 million by year’s end, Marshall said.

The book value of the state’s general portfolio totaled about $1.73 billion as of March 31.

Rick Phillips, president of FTN Financial Main Street Advisors, an asset manager in Las Vegas who advises local governments, said Marshall’s strategy proved sound.

“Some states sold their bonds im­mediately, while Kate Marshall remained focused and implemented a successful strategy, and wisely held the state’s bonds to enhance their recovery value,” he said.

MGM Resorts International CEO Jim Murren said, “Kate demonstrated her leadership in guiding Nevada through the economic storm our country confronted.”

The state’s securities lending agent purchased Lehman Bros. Holdings Inc. bonds on the state’s behalf in 2007 with a face value of $50 million.

The company declared bankruptcy Sept. 15, 2008, and defaulted on its debt obligations, affecting state governments across the country. States overall lost $3 billion in the company’s collapse.

Contact Capital Bureau reporter Sean Whaley at swhaley@reviewjournal.com or 775-687-3900. Follow @seanw801 on Twitter.

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