Finance companies may take $600 billion hit on Lehman's debts: report

Mumbai: Finance companies and investment funds may have to provide around $600 billion in insurance claims on Lehman Brothers' debts, which may worsen the ongoing credit crisis, the New York Times said in a report.

Whether those claims are paid or not, the financial repercussions that follow will be the biggest tests for the credit-default swap market, the report pointed out.

Lehman's defaults are estimated at $400-600 billion and settling them could even cripple some companies with large exposure, the report said.

''The magnitude of the exposure came into focus on Friday, when the price of Lehman's bonds was set via a closely watched auction on Wall Street. The debt was priced at a little above 8 cents on dollar, leaving companies and funds that insured these debts against default on the hook for the remainder,'' the Times said.

The price determined the amount that sellers of bond default protection would have to pay counterparties - those who bought their protection.

''The huge value of credit-default swaps on Lehman Brothers, and the low price obtained in this auction, mean there are billions of dollars in obligations," the paper quoted Eric R Dinallo, the New York State insurance superintendent, as saying.

The total amount coming due is yet unknown because the market for credit-default swaps is not regulated or tracked through any clearing house of data, the report added.