House panel to review $480 million hit Ohio public pension funds took on Lehman investments

Ohio pensions took $480M hit after Lehman collapse

COLUMBUS, Ohio — State records show that Ohio’s public pension funds took a $480 million hit to investments managed by Lehman Brothers as the banking giant collapsed.

Calculations on the shrinking values of the pension funds’ Lehman-managed holdings were released to U.S. Rep. Mary Jo Kilroy of Columbus in advance of Tuesday hearings on the collapse.

The Public Employees Retirement System saw the biggest impact to its portfolio of Lehman Brothers holdings. They declined in value from $441.4 million in December 2007 to just $73.3 million in December 2008, three months after Lehman filed for bankruptcy protection. That figure represents the market value of the holdings, not any gains or losses on individual stocks or bonds.

During the same period, figures show the State Teachers Retirement System saw the value of its Lehman holdings shrink $80 million; the School Employees Retirement System, $18.5 million; the Ohio Police & Fire Pension Fund, $11.2 million; and the Highway Patrol Retirement System, $2.4 million.

Kilroy, a Democrat, pushed for the hearings before the House Committee on Financial Services after a sweeping report on the company’s fall by a bankruptcy examiner found that Lehman used an accounting gimmick to hide $50 billion in debt ahead of the September 2008 collapse.

In a letter requesting the hearings to House Financial Services Chairman Barney Frank, Kilroy said the examiner’s 2,200-page report raised questions such as how regulators charged with policing Lehman for the benefit of the public allowed the collapse to happen, and how many other financial institutions have or are currently abusing this accounting practice.

Her chief of staff, Randy Borntrager, said the impact on Ohio’s pension funds is an example of how the historic bankruptcy affected average Ohioans. He said Kilroy wants to explore whether legislation is needed to address the so-called Repo 105 accounting practice that allowed Lehman to hide its true financial condition.

“We know about this only because of the court-appointed examiner. It just so happens we saw the carcass on this one,” he said. “At the end of the day, the people on Main Street should have known this was going on. They rely on this (investment activity) for their pensions and for a lot of their financial security.”

Julie Graham-Price, a spokeswoman for PERS, said the figures Ohio Treasurer Kevin Boyce’s office compiled represent only the value of the Lehman-managed assets the pension system held in 2007 and then in 2008, not actual gains and losses. Assets may have been bought or sold during that period, so a direct comparison can’t be made, she said.

Graham-Price said gains and losses on the assets the treasurer identified weren’t immediately able to be calculated.

The Highway Patrol Retirement System held just one Lehman-managed asset during the period reviewed, whose value went from more than $16.2 million in December 2007 to $13.8 million a year later. But executive director Dan Weiss said he doesn’t believe the loss can fairly be tied to Lehman’s bankruptcy.

“If you look at the broad stock market from sometime in the middle of 2008 to the end of 2008, everything took a big hit — and continued to through March (2009),” he said. “So all investments, whether they were in stock or bonds, went down as a general statement. That’s my explanation for why our holdings that were managed by Lehman Brothers went down in value.”

Kilroy’s push for answers on the Lehman collapse comes as the bankrupt financial giant looms large in the race for Ohio governor this fall.

Ohio Democrats fighting to return Democratic Gov. Ted Strickland to office emphasize the time his Republican rival, former U.S. Rep. John Kasich, spent as a Columbus-based managing director at Lehman. Their aim is to take advantage of anti-Wall Street voter sentiment.

Kasich recently reported earning nearly $590,000 in salary and bonuses from Lehman Brothers in 2008 before the collapse, in a job he says was several rungs down from corporate leaders.

Borntrager rejected any suggestion that Kilroy had political motives in pushing for the Lehman hearings.

“We’re worried about the people of Ohio,” he said. “This financial collapse is a huge, huge issue and it’s appropriate in her role as a committee member on Financial Services to look into that.”

Laura Ecklar, a spokeswoman for the State Teachers Retirement System, said Ohio’s retirement systems have begun recovering from the Great Recession in recent months but reforms at the state level are still needed to assure the health of the funds.

Among changes Ohio lawmakers are considering is increasing employee contributions, raising the minimum retirement age, and changing the way pension payouts are calculated.

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On The Net:

Ohio Retirement Study Council: www.orsc.org