Bloomberg News

Bank of America Agrees to Reduce Lehman Claims, Return Funds

September 29, 2011

Sept. 29 (Bloomberg) -- Bank of America Corp. agreed to reduce its derivative claims against Lehman Brothers Holdings Inc. entities by $4.5 billion and return about $356 million to Lehman to settle disputes over derivatives obligations, according to a court filing.

Under two accords, Bank of America will drop its appeal of a judge’s order to return $501 million in deposits it took from Lehman in 2008 during the financial crisis and the bank’s Merrill Lynch International unit will reduce its derivative claims by about $3 billion, according to documents filed yesterday in U.S. Bankruptcy Court in Manhattan.

Bank of America and Merrill will support Lehman’s liquidation plan under the settlements. Charlotte, North Carolina-based Bank of America’s acquisition of Merrill Lynch & Co. was completed in January 2009.

The transactions at issue include interest rate swaps, credit derivatives on mortgage backed bonds and foreign exchange options, according to the documents. Bank of America will have a $402 million non-subordinated general unsecured claim against Lehman Brothers Special Financing Inc. in connection with pre- bankruptcy transactions and Merrill Lynch entities will have a similar claim in the amount of $1.1 billion, according to the filings.

Bank of America was ordered last year to return $501.8 million in deposits to Lehman, finding that the bank took deposits unrelated to its loans to Lehman during the financial crisis and must return them. The bank appealed the order in May.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Peter Blumberg, Michael Hytha

To contact the reporters on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net


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