Financial Regulatory Forum

Lehman: Barclays got $8.2 bln “windfall” from sale

September 16, 2009

Signs are displayed on the former Lehman Brothers, now Barclays Capital building in Times Square in New York September 23, 2008. REUTERS/Eric Thayer (UNITED STATES)   By Phil Wahba and Emily Chasan
   NEW YORK, Sept 15 (Reuters) – Lehman Brothers Holdings Inc <LEHMQ.PK> said on Tuesday that Barclays Capital Inc <BARC.L> got a $8.2 billion “windfall profit” from excess assets it took control of in the fire sale of Lehman’s U.S. brokerage business a year ago.
   In court papers filed in federal bankruptcy court in Manhattan on Tuesday, Lehman claimed that “critical changes” were made to the sale in between the time the sale order was signed and the deal was closed, resulting in Barclays gaining control of assets that Lehman contends were not supposed to be part of the sale.
   Lehman filed for bankruptcy on Sept. 15, 2008, in the largest U.S. bankruptcy in history. Its flagship U.S. brokerage business was sold to Barclays less than a week later in a hurriedly-assembled deal.
    “Certain Lehman executives agreed to give Barclays an undisclosed $5 billion discount off the book value of securities transferred to Barclays, and later agreed to give billions more in so-called “additional value” that Barclays demanded, but the court never approved,” Lehman said in the court filing.
    The charges come after Lehman received approval in June to probe whether Barclays got “too good of a deal” when it bought Lehman’s brokerage business, as the British bank was able to quickly book a $4.2 billion gain on its $1.75 billion purchase. Barclays said at the time that it did not expect the probe to result in any additional claims.
  Lehman was allowed to probe Barclays because of the speed with which the deal with Lehman’s was reached. “It’s conceivable that mistakes were made,” said Judge James Peck of U.S. Bankruptcy Court for the Southern District of New York at a hearing in June.
   Lehman alleged in the filing that Barclays had committed to pay former Lehman employees $2 billion in bonuses but never did and “never intended to do so” despite factoring them in to the terms of the sale.
   The difficulties with the valuations of assets and liabilities were “exacerbated the fact that many of the Lehman decision makers who ‘negotiated’ the transaction with Barclays had at the same time been offered lucrative” jobs at Barclays on condition the sale be closed, Lehman said.
    “This is an opportunistic claim,” Barclays said in a statement on Tuesday. “Now that the economy has begun to stabilize the Lehman Estate is trying to re-trade the deal on the basis of a meritless argument.”
   Lehman is asking the court to amend the deal and a hearing is scheduled for Oct. 15.
   The Trustee overseeing the liquidation of Lehman’s North American brokerage business and return of assets to customers also said in a statement on Tuesday that “billions of dollars in additional assets” that Barclays claims it owns are “customer property” and were not authorized by the sale.
   “The transfer of these assets to Barclays would create an unfair windfall for Barclays at the expense of public customers,” James Giddens, the trustee for the Liquidation of Lehman Brothers Inc. under the Securities Investor Protection Act said in the statement.
   The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
 (Reporting by Emily Chasan and Phil Wahba, additional reporting by Chelsea Emery; Editing Bernard Orr) ((emily.chasan@thomsonreuters.com; +1 646 223 6114; Reuters Messaging: emily.chasan.reuters.com@reuters.net)) Keywords: LEHMAN/BARCLAYS 
  
Tuesday, 15 September 2009 23:26:12RTRS [nN1576688 ] {C}ENDS

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •