Structured products providers across the globe are trying to establish the effects on structured products hedged by fallen US investment bank Lehman Brothers.

The UK’s IFA market has reacted with caution. Arc Capital & Income, which has offered retail products hedged by Lehman, pointed out that the products rank alongside bondholders in terms of their call on Lehman’s assets.According to The Times Online, Arc's head of product development Chris Powell said last Friday, as the collapse looked increasingly likely, “The more pressing issue is for those products that have a shorter life, or that make regular payments such as income, which potentially could not be satisfied in the short term, though once sufficient funds can be raised, the original capital and any outstanding income would be met.”

Another UK provider with Lehmans exposure, Meteor AM, posted a comment on its website stating, “…It is not known how the Chapter 11 filing in respect of the holding company will affect [those products]. We understand that the Lehman companies that issued these securities are still trading. It appears likely that it is intended to undertake an orderly liquidation of the group, selling off each business unit. We have been in contact with Lehman Brothers in London today, but as yet they can give us very little information.”

New terms will be offered for plans intended to have been hedged with Lehmans, and cancellations accepted.

China
Hua An Fund Management Co, one of a number of funds operating foreign investment funds under China's qualified domestic institutional investor QDII programme said it might face losses. It did not say how much might be at risk.

Hua An's International Balanced Fund is invested in dollar-denominated principal protected structured notes provided by Lehman Brothers. The notes are linked to a diversified range of assets, including bonds, shares, real estate and commodities, managed by Lehman Brothers Asset Management. "If Lehman Brothers Holdings is unable to fulfill its duties for the principal-protected structured notes, this could severely affect the continued operation of the Hua An Balanced Fund," the company said in a statement on its web site today.

Israel
Israeli firms – corporates, banks, investment houses, and insurance companies managing client money – are reported to be in shock at the discovery of their exposure to Lehman Brothers Holdings. The CEO of an Israeli investment house told online financial sheet Globes, "For years, Lehman Brothers was the house broker for many Israeli companies for their international business."

Italy
A spokesperson from a leading Italian insurer confirmed three domestic insurance companies – Generali, Fondaria-Sai and Unipol – have structured products affected by the collapse of Lehman Brothers: “We are not… facing problems that cannot be solved, but it is still something we have to deal with and it will influence our activities,” he said.

According to our database, Unipol has 86 live structured products, of which 37 were issued through BNL (51% owned by Unipol Gruppo Finanziario Spa and 49% by French BNP Paribas), 34 through Aurora Assicurazione, 14 with Unipol Assicurazioni and one by Unipol Banca. The other two insurance groups, Generali and Fondiaria-Sai, have 26 and nine live products, respectively.

Hong Kong
The Hong Kong Exchange announced that trading in all structured products issued by Lehman Brothers Holdings has been suspended from Tuesday morning, pending an announcement by the US investment bank. "We have already been in contact with Lehman and we will require Lehman to issue a statement before the market opens today," a spokesman at Hong Kong's securities watchdog, the Securities & Futures Commission, told Reuters.

Taiwan
Taiwanese companies have NT$80bn ($2.5bn) at risk, according to Taiwan’s regulator. “The Lehman crisis has a real impact on Taiwan's financial institutions, as its structured notes may become worthless,” added Michael On, president of Beyond Asset Management in Taipei, declining to disclose his holdings. However, he said, “The panic selling, and government attempts to rescue the market are signs that the stock market may be near its bottom.”