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Glencore Is Not The Next Lehman 

October 5, 2015

Craig Pirrong, Seeking Alpha

There is a lot of hysterical chatter out there about Glencore being the next Lehman, and its failure being the next Lehman Moment that plunges the financial system into chaos. Please. Get. A. Grip.

Comparing the firms shows there's no comparison.Let's first talk size, since this is often framed as an issue of "too big to fail." In November, 2007, Lehman's total assets were $691 billion. As of August, Glencore's were $148 billion. Lehman was about 4.5 times bigger. Moreover, Glencore's assets include a lot of short term assets (inventories and the like) that are relatively liquid. Looking at Glencore as a $100 billion firm is more realistic. Lehman was much bigger.

Then let's talk leverage. Lehman had 3 percent equity, 97 percent debt. Glencore about one third-two thirds. Stripping out the short term debt and short term assets, it's about 50-50.

Then let's talk off-balance sheet. Lehman was a derivatives dealer with huge OTC derivatives exposures both long and short. Glencore's derivatives book is much smaller, more directional, and much in listed derivatives.

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