Lehman Says Negotiators Knew Barclays Got $5 Billion Discount

Lehman Says Negotiators Knew Barclays Got $5 Billion Discount


Oct. 17 (Bloomberg) -- Lehman Brothers Holdings Inc. executives who negotiated the sale of the bank’s North American brokerage business to Barclays Plc knew they were giving the U.K.-based bank a $5 billion discount, Lehman said in court.

Executives including Ian Lowitt, Paolo Tonucci and Bart McDade knew that Barclays was getting securities valued at about $50 billion for $45 billion in cash, according to a September motion unsealed Oct. 15 in U.S. Bankruptcy Court in New York in which Lehman asked for the return of some assets.

Some executives negotiating the deal knew they would receive offers to work at Barclays after the sale, Lehman said, citing e-mails and deposition testimony. The salaries offered were blacked out.

“I was aware that the -- that Barclays was going to purchase a substantial block of assets for less than the amount that we had on our books to reflect a sort of bid offer that reflected both the size of the purchase, as well as inherent volatility in the market, which was significant that week,” Lowitt, Lehman’s chief financial officer at the time, testified, according to the documents.

A Barclays Capital spokeswoman, Kerrie-Ann Cohen, and Kimberly Macleod, a Lehman spokeswoman, declined to comment. Lowitt declined to comment through a spokesman. Tonucci, then Lehman’s global treasurer, didn’t respond to messages seeking comment. McDade, then the bank’s president, couldn’t be reached.

Lehman’s assets were under the control of the bankruptcy court when Barclays paid $1.54 billion for them in a sale that closed Sept. 22.

Facts Held Back

“Material components” of the deal were kept from U.S. Bankruptcy Judge James Peck, who approved the sale, Lehman said, giving Barclays an “immediate and enormous windfall profit” that may have exceeded $8.2 billion when liabilities Barclays assumed are taken into account.

Lehman filed the largest bankruptcy in U.S. history on Sept. 15, 2008, with assets of $639 billion.

The collapsed bank asked to revise the deal and be allowed to pursue claims for breach of contract, breach of fiduciary duty and unauthorized transfer of assets. The request is supported by Lehman’s unsecured creditors and James Giddens, the trustee liquidating Lehman’s brokerage on behalf of the U.S. Securities Investor Protection Corp.

The fight between Barclays and Lehman’s creditors over the value of assets transferred is set to last well into next year. Peck said Oct. 15 he wanted to hear live testimony rather than rely completely on depositions. He advised parties to discuss May trial dates.

Regulators’ Support

Government regulators supported the speedy sale to Barclays at the time in an effort to calm global securities markets. Some Lehman creditors fought it, saying the deal was moving too quickly and London-based Barclays was underpaying.

Lehman and Barclays held talks about an acquisition by the U.K. bank in the days before Lehman’s bankruptcy, without agreeing on a deal. Within hours of the court filing, Barclays approached Lehman and negotiated an agreement “very quickly” as the value of Lehman’s assets tumbled, according to court papers.

During a hearing on the deal before Peck, negotiators changed some terms without disclosing them to the court, according to Lehman’s filing by attorneys at Jones Day.

Lehman asked in May for permission to investigate whether Barclays got too good a deal after the U.K. bank’s financial results for 2008 showed a gain of 2.26 billion pounds ($3.72 billion) from the acquisition of Lehman’s North American operations.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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