By Joseph Checkler
The handful of Lehman Brothers Holdings Inc. brokerage customers
that weren't paid back in the aftermath of the investment bank's
2008 collapse moved a step closer Tuesday to getting their money
back, the trustee unwinding the brokerage said.
In filings with the U.S. Bankruptcy Court in Manhattan, trustee
James W. Giddens unveiled details of the billions of dollars of
intercompany settlements with the brokerage's holding company and
U.K. unit that finally free up the money to pay back those 400 or
so customers, mostly institutions and prime brokerage customers of
the U.S. brokerage.
Mr. Giddens previously had said he thought those customers would
get all their money back. But until the details of the settlements
had been finalized, he couldn't be sure.
The 110,000 individual retail customers of Lehman's brokerage
received all their money back, $92.3 billion in all, soon after the
bank's September 2008 collapse. But the nonretail customers have
had to wait as Mr. Giddens sorted out billions of dollars of claims
from both the Lehman parent company and the U.K. arm.
"If judicially approved and implemented, securities customers
should receive full satisfaction of their claims and distributions
from the general estate will be facilitated," Mr. Giddens said
Tuesday.
Mr. Giddens also released Tuesday more details of that landmark
settlement agreed to in principle last October with Lehman's U.K.
unit, Lehman Brothers International Europe. That pact settled $38
billion in disputed claims the two sides had against each other,
but represented perhaps the biggest hurdle for Mr. Giddens as he
tried to set up distributions.
Under the deal, Lehman Brothers' holding company will cut its
customer claim against the brokerage to just $2.3 billion from
$19.9 billion and reduce its "general" claim to $14 billion from
$22 billion.
That $14 billion claim will be paid in accordance with Lehman's
historic creditor payback plan approved by a judge late in 2011.
Creditors of the holding company are getting more than 20 cents on
the dollar for their claims while those with claims against
affiliates in many cases will receive even more.
The distinction between a "customer" claim versus a "general"
claim is crucial in a situation like the Lehman case, in which Mr.
Giddens is winding down the brokerage in accordance with the
Securities Investor Protection Act. Customer claims are paid 100
cents on the dollar from Mr. Giddens' coffers. The hedge funds who
were creditors of the Lehman Brothers Europe prime-brokerage
business, for instance, are expected to get all their money back if
Lehman's settlements are approved.
The "general" claims get back far less, in accordance with the
Lehman parent's payback plan. Lehman has made a total of $30
billion in distributions so far, and expects to make its next one
spring.
Although the brokerage business isn't technically part of
Lehman's Chapter 11 case, U.S. Bankruptcy Judge James Peck must
approve the settlements. A hearing on the settlement with the
holding company is set for April 16, while one on the U.K.
settlement still isn't set.
Lehman collapsed in September 2008, becoming a symbol of one of
the great financial crises in the country's history. Its U.S.
brokerage business was quickly sold to Barclays PLC (BCS, BARC.LN),
but the remnants of the rest of Lehman still exist in billions of
dollars of assets being overseen by Alvarez & Marsal and the
winddown of the brokerage business under Mr. Giddens's
guidance.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection. Go to
http://dbr.dowjones.com)
Write to Joseph Checkler at joseph.checkler@dowjones.com
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