According to a source at Barclays, the bank won’t be assuming the obligation of exchange traded notes (ETNs) issued by Lehman Brothers.
When Lehman filed for bankruptcy last week, industry experts speculated that because Barclays had agreed to purchase the company’s investment-banking and capital markets business, investors in the ETNs would be safe, reports David Hoffman for Investment News.
ETNs trade similarly to the way exchange traded funds (ETFs) do, but they’re debt obligations that are backed by the credit of the issuer. If the issuer goes under, the investor could lose their money.
Now that Barclay’s won’t assume the obligations of the Lehman products, investors have the same standing as any other Lehman holding company senior, unsecured debt, which is trading at 15 to 20 cents on the dollar.
This could be a real chink in the armor in the ETN industry. This is a harsh illustration of the risks of these types of funds, which investors should always be mindful of.
The affected ETNs are:
- Opta Lehman Brothers Commodity Index Pure Beta Total Return (RAW)
- Opta Lehman Brothers Commodity Index Pure Beta Agriculture Total Return (EOH)
- Opta S&P Listed Private Equity Index Net Return (PPE)
The funds have not traded since last Monday.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.