Citi seeks to keep $1 billion Lehman collateral

In a filing in U.S. Bankruptcy Court in New York, Citigroup said it was entitled to keep the $1 billion, which it obtained from Lehman in order to continue providing clearing services for foreign exchange transactions.

The trustee overseeing the liquidation of Lehman Brothers filed the claim against Citigroup and its subsidiaries last March, arguing that the $1 billion was obtained under coercion and that the amount should be part of a general asset pool to be divided among creditors in accordance with bankruptcy law.

Citigroup countered in its filing that it is entitled to keep the $1 billion under the Bankruptcy Code's "safe harbor" provisions, which shield certain financial transactions from being included in the creditors' asset pool.

The "safe harbors" are intended to mitigate potential meltdowns by encouraging banks to continue providing essential services even though their clients risk insolvency.

Citigroup also stated that Lehman's collapse led to $1.26 billion in unpaid expenses related to forex clearing, meaning that the bank was left with a net loss of $260 million even after claiming the $1 billion in collateral.

Lehman's claim against Citigroup is not the only case in which the applicability of the safe harbors is in dispute. Earlier this month, JPMorgan Chase & Co asked a bankruptcy judge to throw out a $8.6 billion claim brought by Lehman to recover collateral it had posted for trading services.

The case is Lehman Brothers Inc. v. Citibank N.A. et al, U.S. Bankruptcy Court, Southern District of New York, Adversary proceeding No. 11-01681.

(Reporting by Jeff Roberts; Editing by Gary Hill)

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