Lehman Preferred Series "J" Preferred (fka LEHJQ)

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NEW YORK -- A judge on Wednesday said Lehman Brothers Holdings Inc. could pay $50 million in bonuses to employees still grappling with a huge derivatives portfolio 15 months after Lehman's collapse.

http://online.wsj.com/article/SB10001424052748704541004574600014098964806.html

Lehman said the bonuses are crucial to prevent employee defections as it works to settle a derivatives portfolio with a total value of more than $10 billion, according to court documents.

Judge James Peck of the U.S. Bankruptcy Court in Manhattan said Wall Street bonuses are "a hot topic people like to take shots at," but he called the bonus plan "an essential ingredient" for Lehman's bankruptcy and extracting value from the derivatives.

Richard Krasnow said the 230 employees given the task of unwinding the portfolio must achieve a total recovery of at least $10 billion to trigger the bonus payments. The payments increase as the recovery value rises. The total bonus pool is $50 million.

At the time of its collapse, Lehman was a party to or guaranteed more than 10,000 derivative contracts representing more than 1.7 million transactions, according to court documents.

Judge Peck also approved Lehman's request to pump $100 million into its struggling Delaware bank unit but expressed concern about the Lehman's repeated requests for emergency funding to support the bank.

The $100 million is intended to maintain the bank's capital levels and prevent seizure by federal banking regulators. Lehman has gone to court numerous times this year to ask Judge Peck for permission to provide financing for the Delaware bank and a bank in Utah. Lehman said propping up the banks is crucial because they represent billions of dollars in value for creditors.

Judge Peck asked Lehman at Tuesday's hearing if the latest request is "the end of the line."

Alfredo Perez, a Lehman attorney, said he hopes the next time the bank comes back to court it will be for approval of a "comprehensive solution" for the two banks and not another emergency funding request, but he couldn't be certain.

"I can't in good faith say absolutely," Mr. Perez said. "I just don't know enough."