Pension funds, former employees, investment firms, and banks with unsecured claims against Lehman Brothers Holdings are finally getting an initial payout of $4.6 billion. That’s about 71% of the unsecured claims against the broker-dealer to be recovered. These creditors of the firm have waited years to get their money back, ever since investment bank went into bankruptcy in 2008 with $613 billion in liabilities.
Lehman’s collapse helped instigate the global financial crisis and it was Barclays (BARC) that bought the brokerage business. It’s trustee, James W. Giddens has already paid back brokerage customers the over $10 billion they were owed.
In total, the Lehman parent company and its units have paid $57.1 billion to unsecured creditors. The majority of creditors are expected to get back up to 35 cents on the dollar.
Giddens says that additional payments for the brokerage’s unsecured creditors are likely. While $20.4 billion claims have been allowed against the firm, about $6.8 billion remain unresolved.
Meantime, the Lehman estate continues to wind down. Remaining holdings will continue to be sold off over the next several years. The brokerage firm is being unwound separately under the Securities Investor Protection Act.
Recently, Lehman’s brokerage unit asked the Second U.S. Circuit Court of Appeals to reconsider its decision affirming that Barclays is entitled to billions of dollars in assets under dispute. They want the court to set up a new hearing.
Giddens noted that the ruling increases Barclay’s gain from when it purchased the brokerage during the bankruptcy court sale. He said this change would reduce how much creditors would get back.
When U.S. Bankruptcy Judge James Peck approved the sale in 2008, he said that “no cash” would go to Barclays from the brokerage firm, including exchange-traded derivatives and the money linked to them. In 2009, Lehman sued Barclays, accusing the British bank of working out a secret discount when it purchased the brokerage. Peck, however, ruled that Barclays did not get an improper “windfall.” He said that the brokerage was entitled to the approximately $4 billion that was held to secure exchange-traded derivatives, while Barclays should get $1.9 billion in clearance box assets.
The two sides appealed. The district court ruled in Barclays favor, saying it had the right to both assets groups. Giddens appealed to the Second Circuit, which affirmed the ruling from the district court. Now, Giddens wants a rehearing.
Lehman continues to face litigation from derivative counterparties and former affiliates.
If you are an institutional investor that has suffered losses because of the negligence of a brokerage firm or another entity, you will want to speak with our securities lawyers right away. Contact The SSEK Partners Group today. Your initial case consultation is free.
Lehman Brokerage Creditors to Get $4.6 Billion, The Wall Street Journal, August 15, 2014
Lehman Bros Creditors Are About To Get $4.6 Billion, Business Insider/Reuters, August 15, 2014
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