Lehman, LBIE agreement in principle resolves $38 billion in claims

By Caroline Salls

Pittsburgh, Oct. 5 - Lehman Brothers Inc. Securities Investor Protection Act (SIPA) liquidation trustee James W. Giddens and Lehman Brothers International (Europe) (LBIE) joint administrator Tony Lomas announced Oct. 5 that an agreement in principle has been reached to resolve all $38 billion of claims among their respective entities.

According to a news release, the agreement is subject to documentation, approval by the U.S. Bankruptcy Court for the Southern District of New York and an order of the English High Court.

If approved, the agreement will allow the trustee and the LBIE joint administrators to proceed with plans to allocate and distribute assets to customers and creditors.

"This is a critical milestone for customers because, if approved by the court, the agreement sets the stage for distributions that will provide for 100% recovery of customer property," Giddens said in the release.

"The agreement resolves tens of billions in claims from LBI's largest single customer claimant and will allow for customer and creditor distributions much sooner than if LBIE's claims involving hundreds of thousands of transactions were litigated.

"We will now work toward the court approvals necessary for distributions on top of the more than $90 billion already made to customers."

Lomas said in the release: "The resolution of LBIE's claims relating to LBI will allow us to move the case forward materially, enabling us to focus on the client-side allocation of over $7 billion of client assets.

"Achieving a final resolution with LBI will be the most significant step in LBIE's administration to date, and having this coincide with our first interim distribution will enable us to plan a much earlier second distribution than would otherwise be the case."

Agreement terms

The terms of the agreement in principle include the following:

• LBIE's $15.1 billion omnibus customer claim against Lehman will be allowed in an amount of $7.5 billion, valued as of Sept. 19, 2008, in securities and cash.

This claim will be augmented by an estimated $600 million in post-filing income;

• LBIE's $8.9 billion house customer claim against Lehman will be replaced by a $50 million allowed cash net equity customer claim;

• Lehman will stipulate to a $4 billion LBIE general property claim, and Lehman's $13.8 billion unsecured claim against LBIE will be eliminated; and

• Lehman's client money claim against LBIE will be assigned to LBIE's nominee.

The parties have agreed to suspend scheduled litigation activity until mid-December to work on finalizing the agreement.

Recoveries limited

According to the release, the agreement limits the amount of the maximum recoveries that each party would make into the other's estate from the claims asserted so that planning for distributions in their respective estates can continue.

If a final agreement can be reached before Dec. 15, a first-quarter 2013 hearing is expected.

SIPC response

In a separate news release, the Securities Investor Protection Corp. (SIPC) applauded Giddens and his attorneys for reaching the deal.

With the return of all Lehman customer property, the SIPC said no advances from its fund will be necessary to make Lehman customers whole.

"This agreement is a significant achievement that will benefit customers in several ways," SIPC president Stephen Harbeck said in the release.

"Not only will it allow for 100% of customer property to be returned, it will allow for the return of securities and cash to customers and creditors in a much more expeditious fashion than if ongoing litigation had continued.

"SIPC's goal is always to achieve the maximum recovery for customers, and trustee Giddens' efforts has yielded the best possible results."

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company emerged from bankruptcy on March 6, 2012.

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