Business Continuity After Customer Collapse

Disaster recovery and business continuity are often thought of in terms of floods, fires, explosions and similar physical events. What may be less obvious to BC planners but just as critical to the survival of an organisation are the non-physical events, such as the loss of a major customer or a major change in a company’s stakeholders. The collapse of the global financial services firm Lehman Brothers was a case in point. At the same time, the company was a major customer of the Euroclear Bank and a major stakeholder of the then fifth largest hedge fund in the US, D. E. Shaw & Co. Luckily Euroclear had already planned for the event.

Euroclear is a leading provider of settlement services for fund, equity, bond and money-market transactions internationally.  Euroclear management had already identified the need for the bank to get to readiness for facing a financial crisis, in the same way that it had already prepared for scenarios of loss or damage involving IT installations, premises, personnel or infrastructure. To do this, the bank upgraded its business continuity plans to prepare for an extreme non-physical scenario that would impact not only the bank but the financial world in general. The scenario was based on the collapse of a major multi-market bank that was at the same time both a key supplier and client of Euroclear.

When the simulation turned into reality on September 15th, 2008, when Lehman Brothers filed for bankruptcy, Euroclear was ready with its business continuity solution to deal with the potential credit exposure, by liquidating securities already held as collateral.  In particular, human reactions to the situation were similar to those observed during the simulation and Euroclear came through the crisis unharmed. D. E. Shaw & Co. acted to contain potentially damaging effects by holding a conference with 200 investors to reassure them about the company’s ability to survive and perform in spite of the Lehman Brothers collapse.  Furthermore, because it had already moved assets away from banks it considered fragile, it had little financial exposure to Lehman.