Repo
A 'repo' is standard sale and repurchase agreement.
A 'repo' is standard sale and repurchase agreement. A repo can be treated in two ways by a firm. If assets are genuinely sold, with just a small chance of being bought back later, then a sale is booked, the assets are taken off the balance sheet and no liability to repurchase them is recorded.
If the seller plans to repurchase the assets, they stay on the balance sheet along with any 'sales proceeds' and a matching liability is recorded. In short, the deal is treated as a secured loan rather than a sale. In Lehman's case, repos that were in reality loans were treated as sales. That way it improved its balance sheet leverage ratios ahead of quarterly results.
Watch Tim Bennett's video tutorial: What is a repo?
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
Nvidia's earnings live: China trade the key question for semiconductor giant’s results
Nvidia's shares have opened strongly ahead of its earnings, as analysts question whether Blackwell sales can make up for lost China revenue following Trump’s trade crackdown
-
8 of the best lakeside properties for sale
The best lakeside properties – from a house on the southeastern shore of Loch Lomond, to a 15th-century hall overlooking a lake in King’s Lynn, Norfolk