Bloomberg News

Barclays Asks U.S. Court to Enforce $50 Billion Lehman Deal

February 13, 2012

Feb. 11 (Bloomberg) -- Barclays Plc asked a U.S. District judge to enforce a $50 billion deal struck in 2008 to buy bankrupt Lehman Brothers Holdings Inc.’s North American assets, saying it would “jeopardize” future sales of distressed companies if contracts and promises weren’t honored.

“The Barclays sale was approved because it was better than any available alternative for all customers” of Lehman’s bankrupt brokerage, the U.K. bank said in a court filing yesterday in Manhattan. So-called 363 sales helped the former General Motors Corp. reorganize in bankruptcy and gave 72,000 Lehman brokerage customers access to $40 billion in assets frozen in the bankruptcy, the bank has said.

More than three years after the purchase, the U.K. bank continues to fight the remnants of Lehman’s brokerage over about $3 billion in assets, which it says belong to Barclays according to sale contracts and Lehman’s promises.

The brokerage trustee says a key contract was altered to benefit Barclays, and he needs the assets to pay the remaining brokerage customers. Both parties appealed a bankruptcy judge’s rulings on the assets and are preparing for a hearing in U.S. District Court.

In a court filing yesterday, Barclays pressed its claim to about $2 billion in margin assets, saying it would never have taken on Lehman’s trading positions without the margin backing them. It also claimed $769 million in other assets. Brokerage trustee James Giddens demanded $1.1 billion in so-called clearance box assets held to clear trades -- which Barclays, doubting the assets had any value, agreed to give up in the 2008 credit crisis, he said.

2010 Trial

The dueling between London-based Barclays and trustee Giddens follows a bankruptcy court trial held in 2010 before U.S. Bankruptcy Judge James Peck in Manhattan.

In his decision, the judge told Barclays to return $2 billion in margin assets to Giddens while ordering the trustee to give the bank at least $1.1 billion, and possibly another $769 million.

Barclays, the sole bidder for Lehman’s business in the financial crisis, paid $1.54 billion for the brokerage and real estate. It also infused $45 billion into the floundering firm and took securities valued by Lehman at $49.7 billion, according to Barclays’s account of the deal. Some of the promised assets were never delivered, it has said.

Barclays emerged from the trial facing far less of a payout than had been sought by the trustee, who had demanded about $7 billion from the bank.

The Lehman brokerage’s parent had sought an $11 billion “windfall” it alleged Barclays made on the 2008 purchase.

The Lehman parent got nothing and dropped its appeal of Peck’s ruling on the windfall claim, saying it wanted to move ahead with its liquidation plan, which would pay the average creditor less than 18 cents on the dollar in the next few years.

Lehman filed the biggest bankruptcy in U.S. history in 2008, listing assets of $639 billion. The brokerage is being liquidated separately from its parent, and has been gathering money to pay hedge funds and other remaining customers.

The district court case is Giddens v. Barclays Capital Inc., 11-cv-06052, U.S. District Court, Southern District of New York (Manhattan).

--Editors: Michael Hytha, Mike Millard.

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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