Barclays, Lehman Brokerage Resume $3 Billion Asset Fight
By Linda Sandler – Oct 29, 2011 9:12 AM ET
A U.S. bankruptcy judge’s order that Barclays Plc return $2 billion in margin assets to the liquidator of Lehman Brothers Holdings Inc.’s brokerage was “commercially absurd” and should be reversed, the U.K. bank said in a court filing challenging the decision.
“Courts should avoid interpretations that are commercially absurd and make no economic sense,” Barclays argued in the appeal yesterday in Manhattan federal court, saying that the ruling violated established law.
The Lehman brokerage’s trustee yesterday disputed a separate ruling by the same judge, claiming he erred in awarding $1.1 billion in assets to Barclays. The judge mistakenly focused on a description of the assets, held in boxes to clear trades, rather than concentrating on which party they were owed to, the trustee argued in his own appeal.
The dueling filings between London-based Barclays and trustee James Giddens follow a bankruptcy court trial held in 2010 before U.S. Bankruptcy Judge James Peck in Manhattan. Both sides have challenged Peck’s June order on the fight over assets. Lehman Brothers filed the biggest bankruptcy in U.S. history in 2008. The brokerage is being liquidated separately from its parent, and has been gathering money to pay hedge funds and other remaining customers.
In his decision, the judge told Barclays to return $2 billion in margin assets toGiddens while ordering the trustee to give the bank at least $1.1 billion, and possibly another $769 million.
Barclays, the sole bidder for Lehman’s business in the 2008 financial crisis, said yesterday Peck’s award of $2 billion to Lehman’s defunct brokerage was commercially unreasonable because the bank would never have taken on trading assets without the margin backing them.
Barclays, the second-biggest U.K. bank, emerged from the trial facing far less of a payout than had been sought by the trustee, who had demanded about $7 billion from the bank.
The Lehman brokerage’s parent had sought an $11 billion “windfall” it alleged Barclays made on the 2008 purchase.
The Lehman parent got nothing and dropped its appeal of Peck’s ruling on the windfall claim, saying it wanted to move ahead with its liquidation plan.
Creditors holding $160 billion in claims back Lehman’s plan, which has a Nov. 4 voting deadline, the defunct firm has said.
Michael O’Looney, a Barclays spokesman, declined to comment on Giddens’s so-called cross appeal.
Giddens said in a statement that the judge’s margin award to Lehman’s brokerage was a “milestone” for brokerage customers and that he would contest Barclays’s appeal.
The district court case is Giddens v. Barclays Capital Inc., 11-cv-06052, U.S. District Court, Southern District of New York (Manhattan).
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