Repo 105

AAA

DEFINITION of 'Repo 105'

An accounting trick in which a company classifies a short-term loan as a sale and subsequently uses the cash proceeds from said sale to reduce its liabilities. In the repo market, companies are able to gain access to the excess funds of other firms for short periods in exchange for collateral (usually a bond). The company that borrows the funds will promise to pay back the short-term loan with a small amount of interest and the collateral typically never changes hands. This is what allows firms to record the incoming cash as a sale; the collateral is assumed to have been "sold off" and bought back later.

INVESTOPEDIA EXPLAINS 'Repo 105'

Repo 105 made headlines following the collapse of Lehman Brothers. It was reported that Lehman accountants used the accounting maneuver to pay down $50 billion in liabilities to reduce leverage on their balance sheet before earnings were announced. This made it look like Lehman was much less reliant on debt than it actually was.

RELATED TERMS
  1. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  2. Lehman Brothers

    A firm that was once considered one of the major players in the ...
  3. Bear Stearns

    An investment bank located in New York City that collapsed during ...
  4. Money Market

    A segment of the financial market in which financial instruments ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities. ...
  6. Convention Statement

    A document filed by an insurance or reinsurance company that ...
RELATED FAQS
  1. What is the difference between carrying value and fair value?

    Carrying value and fair value are two different accounting measures used to determine the value of a company's assets and ... Read Full Answer >>
  2. What are the fundamental differences in U.S. GAAP and International Financial Reporting ...

    Public accounting rules in the United States are governed by the generally accepted accounting principles, or GAAP, which ... Read Full Answer >>
  3. What agencies were created by the Glass-Steagall Act?

    The Glass-Steagall Act, also known as the Banking Act of 1933, was proposed and passed by Congress in response to the failure ... Read Full Answer >>
  4. What is the rate of return I can expect on a savings account?

    Prior to the Great Recession, savings account rates offered by banks could typically be found in the 4 to 8% range, depending ... Read Full Answer >>
  5. What is the difference between tier 1 capital and tier 2 capital?

    Under the Basel Accord, a bank's capital consists of tier 1 capital and tier 2 capital, and the two types of capital are ... Read Full Answer >>
  6. How can I calculate the leverage ratio using tier 1 capital?

    The tier 1 leverage ratio is used to determine the capital adequacy of a bank or a holding company, and it places constraints ... Read Full Answer >>
Related Articles
  1. Investing Basics

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  2. Investing Basics

    The Importance Of Corporate Transparency

    Clear and honest financial statements not only reflect value, they also help ensure it.
  3. Personal Finance

    Case Study: The Collapse of Lehman Brothers

    This company survived many financial crises in its long history. Find out what finally drove it to bankruptcy.
  4. Investing Basics

    What is a Minority Interest?

    A minority interest is an ownership or equity interest of less than 50% of an enterprise.
  5. Investing

    Free Cash Flow vs EBITDA: Which Should You Analyze?

    FCF and EBITDA are two ways of looking at the earnings of a business. EBITDA might be better for comparison purposes, while FCF is good for valuation.
  6. Investing

    Key Financial Ratios For The Retail Industry

    The retail industry is measured on sales growth in existing store, forecasted based on foot traffic and ticket data, and the impact on profitability ratios.
  7. Professionals

    Know Key Financial Data Before Betting On Airlines

    The airline industry is highly cyclical. Investors need to understand where the industry is in the cycle in order to assign appropriate valuations.
  8. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  9. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  10. Economics

    What is the Cash Ratio?

    The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities.

You May Also Like

Hot Definitions
  1. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  2. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  3. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  4. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  5. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
  6. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
Trading Center