Barclays urges dismissal of Lehman 'windfall' suit
NEW YORK/LAS VEGAS (Reuters) - BARCLAYS (BARC.LO)Plc urged a judge to throw out a lawsuit by Lehman Brothers Holdings Inc's bankruptcy estate alleging that it reaped a secret $5 billion profit from its rushed September 2008 purchase of the company's U.S. brokerage.
In a 325-page filing on Friday with the bankruptcy court in Manhattan, the British bank also rejected efforts by the Lehman estate to renegotiate the purchase on the grounds that the terms were supposedly "too good" for Barclays.
"If Barclays lost money on this transaction, it would have been the end of the U.S. capital markets," said Barry Ridings, a Lehman financial adviser and senior restructuring adviser at Lazard Ltd , in a deposition quoted in Friday's filing.
"If Barclays had expended this money and the capital markets continued to fall, there was a chance Barclays would then subsequently fail, which would have meant that Goldman (Sachs) , Morgan Stanley , the list goes on and on of firms that may fail," he went on. "It was that bad."
Lehman's chief executive is restructuring specialist Bryan Marsal of Alvarez & Marsal. In a statement, the company rejected Barclays' contentions.
"The deal was described to the Lehman boards and to the court as an equivalent exchange of value, with no embedded gain for Barclays," it said. "Lawyers and the court were not informed of an upfront discount for Barclays. Because the court was never told, it never approved such a gain."
Lehman's court-appointed trustee also rejected the claims, saying they were based on "strained interpretations" of the sale terms and would create a "windfall" for Barclays.
Barclays cemented its roughly $1.54 billion purchase of Lehman's U.S. brokerage and some real estate just days after the company's September 15, 2008 bankruptcy. It remains the largest bankruptcy in U.S. history.
Bob Diamond, Barclays' president, said last month the assets the bank acquired are performing better than expected.
Lehman's collapse came just hours after efforts to sell the entire company fell through, and triggered a financial crisis from which economies worldwide are struggling to recover.
IS "WINDFALL" REAL, OR FICTION?
The current debate on whether Barclays extracted a sweetheart deal turns in part on its September 18, 2008 agreement to advance $45 billion of cash to Lehman in exchange for $49.7 billion of collateral.
Lehman's estate contended that Barclays got a windfall when it later marked up some assets, and is now seeking billions of dollars in damages.
But Barclays counter "the supposed $5 billion windfall is a fiction," and Lehman and its trustee owe it billions.
The British bank said it negotiated in good faith under "distressed circumstances," and "at the insistence" of the Federal Reserve Bank of New York.
Repeating that Lehman's fast-deteriorating value was akin to a "melting ice cube," it said that Lehman's own financial advisers did not see problems with the takeover terms, and recognized the consequences if the transaction did not occur.
Barclays added that accepting the Lehman estate's claims would be so "grossly unreasonable" that it would violate the due process and "takings" clauses of the U.S. Constitution.
A hearing on Barclays request is set for March 25. Objections are due by March 4.
The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Emily Chasan in Las Vegas and Jonathan Stempel in New York; Editing by Steve Orlofsky, Leslie Gevirtz)