Lehman balance sheet massaging may not be unusual

On Wall Street, massaging the balance sheet is a time-honoured practice. But did Lehman Brothers Holding Inc cross a line in the routine manipulation of its balance sheet, as described by an independent examiner?

That is the central question to emerge from the examiner's report, released late on Thursday by the bankruptcy court in Manhattan, which details examples of Lehman concealing assets and liabilities through accounting techniques. Thomas Baxter, general counsel of the Federal Reserve Bank of New York, one of the main banking regulators, told the examiner, Anton Valukas, that he was generally aware of firms using "balance-sheet window dressing," but had no specific information on Lehman.

Banks have wrestled with this issue for years. The old Bankers Trust, for instance, struggled to fend off bank clients that wanted to use BT to help conceal assets, said Ray Soifer, a consultant who previously worked at BT and sat on a task force designed to reduce that business. "Reducing leverage is something that banks do. It's cosmetic," Soifer said.