Claims Dispute Pushes Back Lehman Trustee's Payback Estimate
January 25 2012 - 11:54AM
Dow Jones News
The trustee unwinding the brokerage of Lehman Brothers Holdings
Inc. (LEHMQ) pushed back his estimate as to when he thinks he can
start allocating $18.3 billion to a fund that will be used to pay
back customers, citing an ongoing dispute with Lehman's European
affiliate over how much it can claim.
At a Wednesday hearing, a lawyer for trustee James W. Giddens
said he hoped "interim distributions" to customers could start
during the first half of 2012 rather than in "early 2012" as was
originally hoped.
"This time around there are more issues on the table," said
Hughes Hubbard & Reed LLP's David W. Wiltenburg, a lawyer for
the trustee, referring to a first allocation to customers approved
earlier in the case. This time, Wiltenburg said, there are "more
dollars in question."
A big chunk of those dollars is tied up in a dispute with Lehman
Brothers International Europe, which Giddens intends to pay $2.2
billion in cash plus about $6.1 billion of account positions.
LBIE's claims are related to the firm's European prime brokerage
clients, but it thinks it should be treated as a "customer" and
thus paid more.
Wiltenburg told Lehman Judge James Peck of the U.S. Bankruptcy
Court in Manhattan that if the trustee could reach "a certain level
of comfort" on some issues, it thinks it can start distributing
money to customers before settling the LBIE dispute. A lawyer for
one brokerage customer stood up in court Wednesday to ask Peck to
set a strict schedule for when money can start going back to
customers, citing that his client has waited three years.
Peck said he was "sensitive to the fact that there is an unheard
Greek chorus of impatient creditors who are saying 'What about
us?'" but rejected the strict timetable. Wiltenburg, the trustee's
lawyer, said he hoped to have more specific details of the progress
at a hearing next month.
The LBI Europe claim, and how it's determined, will greatly
affect Giddens's payback plan. In filings, LBIE has called some of
the trustee's accounting "not an accurate determination" of
Lehman's books and records and asked Peck to overturn the trustee's
decision approving $8.3 billion as the amount for one of its claims
rather than the $15.1 billion the European unit says it's owed.
The "omnibus customer claim," as it's called, is in addition to
another $8.9 billion the two sides are haggling over. The trustee
contends LBI Europe is asking to be treated along the same lines as
those of individual customers, who expect to eventually get full
recovery in the brokerage's liquidation. In all, the trustee said
LBI Europe is claiming "customer status" for $24 billion, "a number
that currently exceeds all the assets under the trustee's
control."
The hearing was essentially a status update on Giddens's request
to allocate the money to customers, which Peck will eventually have
to approve. Giddens said in court papers last month that most of
the $23.7 billion it expects to eventually be available to those
customers is "now in hand."
The trustee has said it controls a pool of more than $20 billion
in assets to pay back creditors, but it hasn't yet been determined
how those funds will be divided between the broker-dealer's estate
and customers. The trustee has also cited a "substantial
shortfall," meaning creditors other than individual brokerage
customers won't receive anything near 100% of their claims.
Giddens's wind-down of the Lehman broker-dealer is done under
the authority of the Securities Investor Protection Corp. because
that agency governs the liquidation of failed brokerage firms.
His team has transferred some 110,000 brokerage accounts with a
value of more than $92 billion out of Lehman Brothers following the
investment bank's collapse in 2008. The bulk of the Lehman customer
accounts, with assets of more than $40 billion, has been
transferred to Barclays PLC (BCS), which bought Lehman's brokerage
when it filed for bankruptcy in September 2008.
The broker-dealer's bankruptcy case is being administered
separately from Lehman Brothers Holdings' Chapter 11 proceeding.
Last month, Peck signed off on Lehman's $65 billion plan to pay
back creditors, who should start getting money back sometime in the
coming weeks.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com
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