Bloomberg News

Lehman Seeks to Cancel Billions in JPMorgan Claims

July 05, 2012

Lehman Brothers Holdings Inc., which seeks to cancel billions of dollars in payment claims by JPMorgan Chase & Co. (JPM:US), asked a judge to help by reconsidering parts of an $8.6 billion lawsuit against the biggest U.S. bank.

JPMorgan, a key lender to Lehman in the 2008 credit crisis, says it is owed $6.3 billion by the defunct investment bank. Lehman, as part of an effort cut creditors’ claims to $300 billion to meet its target of repaying at the rate of 18 cents on the dollar, is fighting JPMorgan in a lawsuit and a separate challenge in court.

A revised ruling by the judge who dismissed part of the lawsuit in April might bring “significant relief,” Lehman said in a filing. While it won’t try to “relitigate” his decision on the law, he could reinstate part of the lawsuit “based on other theories, such as fraud,” the defunct firm said in the July 3 filing in U.S. Bankruptcy Court in Manhattan.

Separately, JPMorgan is struggling to maintain its image as risk-averse and well-managed after reporting a $2 billion loss in a London unit that Chief Executive Officer Jamie Dimon said “violated common sense.” Dimon said the loss may grow to $3 billion or more. Analysts including Charles Peabody at Portales Partners LLC in New York estimate it at about $5 billion.

Joe Evangelisti, a JPMorgan spokesman, declined to comment on Lehman’s filing.

Safe Harbor

In its suit, Lehman, once the fourth-largest investment bank, accused New York-based JPMorgan of helping to cause its 2008 collapse by demanding $8.6 billion in collateral as backing for loans. JPMorgan, saying it lent Lehman $70 billion around the time of its 2008 collapse, sued back, saying it was deceived into making the loans.

U.S. Bankruptcy Judge James Peck told Lehman in April that it cannot sue JPMorgan over transactions governed by so-called safe harbor law, devised to protect banks dealing with weak companies. Doing so, he took away Lehman’s easy way of getting money from the bank or canceling its claims, leaving it “to pursue the remaining ‘‘complex and fact driven causes of action,’’ according to a written decision.

Lehman has twice asked Peck to reconsider. JPMorgan said in February it would give Lehman almost $700 million to settle part of the lawsuit, though it continues to fight for most of its claims.

Dismissal ‘Premature’

Peck said this week it would be ‘‘premature’’ to throw out objections to the claims by Lehman and its creditors committee, as the bank asked.

Lehman, which exited bankruptcy in March, intends to pay creditors $53 billion in six years or so. Lehman filed the biggest bankruptcy in U.S. history in September 2008, listing $613 billion in debt.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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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