Banks scoop up Lehman's derivatives clients

Dealers have reported a surge in business in the wake of the bankruptcy of Lehman Brothers, as former clients of the failed investment bank look for new counterparties to replace hedges.

"We are seeing more and more enquiries. Clients had hedges with Lehman Brothers and they need to replace them, says one London-based interest rate trader. We've been swamped over the past few days and we've seen hundreds of trades on the exotic side.

Ninety-nine borrowers have outstanding structured notes and private placements that had been issued through Lehman Brothers, including the Republic of Italy, KfW and Freddie Mac, according to mtn-i.

The bank's collapse would have left many of those issuers with unhedged exposures and in desperate need of new swap counterparties. Lehman Brothers acted as dealer on $48.6 billion of outstanding structured notes and private placements, with structured notes accounting for $30.5 billion of that total, according to mtn-i.

However, activity goes far beyond clients looking to replace hedges on structured note issuance dealers are reporting activity across asset classes and from a broad variety of clients.

Some clients are coming to us with an entire portfolio, while others are taking it trade by trade. We're expecting to see increased client requests until at least the end of the week, adds another London-based trader.