State could lose $50 million in bad investments

State Treasurer Kate Marshall told the Assembly Ways and Means Committee on Monday that in a worst-case scenario, Nevada would lose $50 million in a two-year-old investment in Lehman Brothers.

That Wall Street bank failed last year and is now in bankruptcy.

Of that total, Marshall said 35 percent, or just under $18 million, would be General Fund money that the Legislature would have to make up.

Marshall said she has been told by the bankruptcy court handling the case the state is likely to get 50 cents on the dollar from that investment, which means the General Fund loss would be about $9 million.

"Please take that with a grain of salt," Marshall told the committee. "I have not seen a check."

She said the money is part of a $250 million pot of invested cash in a securities lending instrument which she stopped using last year. These investments, however, are just maturing now.

The largest piece of that pot is a $75 million investment with Wells Fargo. Marshall said that bank, largest in the nation, is in much better shape than some other banks but that she and her staff are keeping a close eye on it.

She said the state may come out of the situation in better shape than it looks.

"There are other legal options we are pursuing which may result in much greater recovery to the state," she said.

She said she could get out of the entire $250 million now. The state will lose the interest it would otherwise get plus $1.7 million of its original cash investment.

"My thought is that's not much compared to a $250 million loss," said Assemblywoman Heidi Gansert, R-Reno.

Marshall said there are other elements in the mix that could help the state out including her decision to terminate her office's contract the Lehman Brothers Commercial Bank contract separate from the $50 million investment.

"That should result in $20-$30 million to the state which we did not expect."

- Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.