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October 10, 2016
Source: Klaveness

One month ago Hanjin Shipping Co. sought bankruptcy protection, sending shivers down supply chain managers’ spines and creating fear among banks and counterparts. Gerry Wang, Seaspan’s CEO, called the event a “Lehman moment”. Although we find the analogy an exaggeration, there are important similarities and learnings to be had between the events.

The Lehman failure in September 2008 rocked the foundations of global finance with huge consequences to the real brick and mortar economy. The $600bn size of Lehman’s balance sheet, which was levered about 31:1 prior to the fall-out (compared with Hanjins’ 12:1), created fear that even bigger and “systemically financial important institutions” could be dragged down. The bankruptcy increased awareness of the complexity of credit exposures through derivatives and industry interconnectedness. Trust eroded overnight, lending in the interbank market froze, and as a consequence there was a scramble for liquidity. The situation eased only after the FED and ECB implemented programs to fund major banks and preventing failures of the likes of AIG.

No one is too great to fail

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