Lehman Brothers Holdings Inc fired new allegations at Barclays Capital Inc on Thursday, saying the British investment bank got a $13 billion “windfall” profit from its deal to buy Lehman's US brokerage in September 2008.
In documents filed in US bankruptcy court in Manhattan, Lehman claimed new evidence showed that, while Barclays said it had a “day one” accounting gain of $4.2 billion on the Lehman acquisition, in reality it received a $13 billion windfall “immediately upon acquisition.”
Lehman filed for bankruptcy on September 15, 2008, the largest US bankruptcy filing in history. Its flagship US brokerage business was sold to Barclays for about $1.85 billion less than a week later in a hurriedly arranged deal.
Barclays spokesman Michael O'Looney disputed Lehman's claims saying they had “no basis.”
Lehman, which has been waging this battle against Barclays for months, said the deal presented to the court was not the one that was actually executed. Lehman employees who had been offered new jobs at Barclays had arranged for Barclays to get a $5 billion discount on Lehman's $70 billion book of securities, Lehman claimed.
“"The 'negotiated' sale price for the assets had nothing to do with 'book value' and contained an embedded $5 billion gain for Barclays that was not disclosed,” Lehman's attorneys at Jones Day wrote.
Lehman also claimed Barclays knew its purchase agreement required $2 billion to be spent on bonuses to former Lehman employees, but in reality Barclays has only paid $1.55 billion.
"More than a year after the terms were agreed upon and contrary to well established federal law, the creditors seek to change the terms of the sale," Barclays' spokesman said.
“Renegotiating the transaction would undermine the ability of the federal government and private parties in the future to sell distressed bank assets in order to protect as much as possible depositors, shareholders, creditors, and the government.”
Lehman is asking Judge James Peck to make changes to the September 2008 sale order that authorized the deal and force Barclays to return assets to the Lehman bankruptcy estate.
WHO KNEW WHAT WHEN?
At the center of the dispute are questions about what Lehman's and Barclays advisors knew about the deal at what time and whether anyone was being kept purposefully in the dark.
Both sides of the dispute have taken different readings of depositions of Lehman's key advisors, such as Lehman's Weil Gotshal & Manges attorney Harvey Miller, and Lehman's financial advisor at Lazard, Barry Ridings. Lehman claimed in court papers its advisors had not been informed of all of the economic terms of the deal and were not privy to Barclays knowledge of inflated numbers.
Barclays has said comments from advisors, such as Ridings, who said “it would have been the end of the US capital markets” if Barclays lost money on the Lehman deal, show Lehman's advisors still stand by the sale.
“The acquisition was the best and only alternative for Lehman,” Barclays' 'O'Looney said in a statement on Thursday.
A “clarification letter” that changed the terms of the deal shortly after it was approved by the court is also a key part of Lehman's claims. Lehman says the letter implemented significant changes without creditors knowledge and without the court's authority.
James Giddens, the trustee in charge of liquidating Lehman's brokerage and making sure customers receive their assets, also filed court papers on Thursday. He said Barclays did not have a right to the assets in dispute.
“The Trustee simply seeks to enforce the deal that was described to, and approved by, the Court at the Sale Hearing,” attorneys for Giddens said in court documents.
A court hearing on Lehman's dispute with Barclays is set for April 9, according to court documents. (Reuters)