Lehman’s trustee anticipates windfall
By Telis Demos in New York and Megan Murphy in London
Published: February 23 2011 19:13 | Last updated: February 23 2011 19:13
Lehman Brothers’ trustee is potentially in line for billions in additional cash as part of Barclays’ deal to acquire the defunct investment bank’s US broker-dealer business, after a US bankruptcy court opinion.
The UK bank and Lehman’s trustee, a US government-appointed attorney assigned to collect monies for Lehman’s broker-dealer customers, were trying on Wednesday to decide how much cash should be transferred under the court’s ruling on Tuesday.
EDITOR’S CHOICE
In depth: Lehman Brothers - Nov-23Barclays purchase of Lehman unit ruled fair - Feb-23Lehman reaches agreement with German affiliate - Feb-04Lehman revamps creditor proposal - Jan-26Pimco in bid to boost Lehman bondholder pay-outs - Jan-14Lehman creditors unveil rival bankruptcy plan - Dec-16Judge James Peck of a New York bankruptcy court ruled that the deal was fair, refuting the claim of the Lehman estate and its creditors that Barclays misrepresented the value of securities it acquired for $45bn in September 2008 in the aftermath of the US bank’s collapse. He said the deal was “admirable, even heroic” under the “fog of war” during that week.
The estate and its creditors declined to comment.
But Judge Peck did agree with the Lehman trustee, James Giddens of Hughes Hubbard & Reed, that Barclays took some cash assets that were not part of the deal. They included $4bn in cash margin held by clearing houses for exchange-traded derivatives, plus $769m in cash held in “15c3-3”, or protected customer, accounts.
“This was enormously important to us. If we hadn’t won this, it would have frustrated the trustee’s ability to pay customers,” said William Maguire, the trustee’s chief trial counsel.
The judge said Barclays was entitled to $1.9bn in securities in a “clearance box” held by Depository Trust & Clearing Corporation, that it had sued Lehman to recover. There is currently about $800m in those accounts.
According to Mr Maguire, Lehman’s trustee already possesses some of the cash in dispute, and Barclays will now have to transfer to the trustee more than $1.5bn in cash and relinquish rights to a further $1bn held by third parties.
Barclays said in a statement: “We are pleased with the court’s decision,” but would not comment on sums potentially owed.
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