Repo 105: Lehman’s ‘Accounting Gimmick’ Explained : Planet Money : NPR
This gap allowed the company to record the transaction as if it had been a true sale of the bond — despite the fact that, under the agreement, the company would repurchase the bond just a week or so after it had sold it.
Lehman would take the money it got from selling the bond and pay off some of its debts. Then, after it had issued its quarterly report, the company would borrow more money to repurchase the bond.
Lehman went big on this technique: In the second quarter of 2008 it used Repo 105 to move $50 billion off of its balance sheet, according to the Examiner’s report.
“Lehman did not disclose its use … of Repo 105 to the Government, to the rating agencies, to its investors, or to its own Board,” the report said. One senior official inside the company warned that the use of Repo 105 would present “reputational risk” to the company if the public found out.