NDFA and Defined Returns warn investors of big Lehmans losses

NDFA and Defined Returns Limited have warned investors they could suffer substantial losses from structured products backed by the bankrupt bank Lehman Brothers. 

The firms, which are part owned by Friends Provident, said cash cannot be paid out or withdrawn from the plans while Lehman Brothers was in adminstration.

‘Whilst NDFA would hope to see investors receive some capital returned, it is not possible to say at this time whether or when any further payments will be received from Lehman Brothers,’ said a spokesman for the NDFA. ‘Investors should prepare themselves for a substantial loss of value if early encashment becomes possible through resumed trading in the underlying Lehman securities.’ 

NDFA has five plans which used derivatives provided by Lehmans:

• Fixed Income & Growth Plan February 2008
• Capital Secure Fixed Growth Plan March 2008  
• Capital Secure Fixed Growth Plan April 2008  
• Fixed Income Plan June 2008  
• Capital Secure Fixed Growth Plan June 2008

While Defined Returns Limited has three plans affected:

• Dual Income Plan
• Enhanced Returns Plan Issue six
• Kick-Out Performance Plan Issue two

NDFA said it had been difficult to contact Lehmans administrators PricewaterhouseCoopers and had consult lawyers to understand investors’ position. NDFA and Defined Returns Limited said it had written to investors in the affected plans. Friends Provident have a 30% stake in the two companies, with private individuals representing the rest of the shareholders.  

Other structured product providers have been hit by the collapse of Lehman Brothers. Meteor Asset Management was hunting for backers for two of its structured product plans after its original counterparty Lehman Brothers was forced to drop out. 

Meteor has already found a backer for one of its plans, Prima Plus three plan, with Merrill Lynch. Merrill Lynch was bought this weekend by Bank of America. Now Meteor is trying to find backers for the two other plans affected, Prima nine and its Property Recovery fund. 

The money in the three plans has not been invested yet. If Meteor cannot find a provider to hedge its risks the plans will have to be cancelled and the money returned to investors.  

Fellow structured product providers Keydata and Blue Sky Asset Management confirmed they did not have any exposure to Lehman Brothers.