ITEM 2.06. Material Impairments.
Doral Financial Corporation and Doral Bank, its Puerto Rico banking subsidiary (combined "Doral"), had counterparty exposure to Lehman Brothers, Inc. ("LBI") in connection with repurchase financing agreements and forward TBA ("To-Be Announced") agreements. LBI was placed in a Securities Investor Protection Corporation ("SIPC") liquidation proceeding after the filing for bankruptcy of its parent Lehman Brothers Holdings Inc. The filing of the SIPC liquidation proceeding was an event of default under the repurchase agreements and the forward agreements resulting in their termination as of September 19, 2008.
The termination of the agreements has led to a reduction in the Company's total assets and total liabilities of approximately $509 million. The termination of the agreements has also caused Doral to recognize a previously unrealized loss on the value of the securities subject to the agreements, resulting in a $4.2 million charge during the quarter ending September 30, 2008. Doral has also notified LBI and the SIPC trustee for LBI that it is owed approximately $43.6 million, representing the excess of the value of the securities held by LBI above the amounts owed by Doral under the agreements, plus ancillary expenses and damages. Doral is unable to determine at this time the probability of receiving full or partial payment of such amounts owed by LBI or to reasonably estimate any loss thereon.