Lehman Australia Faces CDO Legal Threat - Report

SYDNEY Mon Dec 17, 2007 8:02am EST

SYDNEY (Reuters) - U.S. investment bank Lehman Brothers LEH.N is facing possible legal action by local councils in Australia who bought collateralised debt obligations (CDOs) from its local unit, Grange Securities, the Financial Times newspaper said Monday.

At least three municipal councils were considering litigation against Grange after losing money on the high-risk investment following the U.S. subprime mortgage crisis, the newspaper said.

The Sydney beachside council of Manly told Reuters on Monday it was reviewing its options and legal action was a possibility but it hoped to resolve the issue through other means.

"It is an option at this stage but we are not pushing that angle," Manly Council Chief Financial Officer Ross Fleming said.

A Lehman Australia spokeswoman said the firm was not aware of any legal action.

The FT said one Lehman-originated CDO exposed to the U.S. subprime mortgage market was marked down to just 16 cents in the dollar by the bank last month, leaving councils nursing paper losses of 84 percent.

Lehman's Australian business has been renamed Lehman Brothers Australia following the purchase of Sydney-based brokerage Grange Securities in March.

(Reporting by Michael Smith; Editing by James Thornhill & Lincoln Feast)

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