Lehman Settles Credit Suisse Suit -- WSJ
June 14 2018 - 3:02AM
Dow Jones News
By Patrick Fitzgerald
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 14, 2018).
The remnant of Lehman Brothers Holdings Inc. has settled a $1.2
billion derivatives lawsuit with Credit Suisse Group AG, wrapping
up one of the last remaining big legal battles involving the failed
investment bank nearly a decade after its collapse.
Creditors will recover about $280 million on Credit Suisse's
derivatives claims against Lehman, according to a Wall Street
Journal analysis of bankruptcy court filings. But most of that cash
is earmarked for other investors, mainly hedge funds, because the
Swiss bank doesn't own most of the claims.
Credit Suisse had claimed $1.2 billion in losses related to
early termination of thousands of derivatives contracts when Lehman
filed for bankruptcy in 2008. Under the terms of a settlement filed
Tuesday night in U.S. Bankruptcy Court in New York, creditors will
get an allowed $385 million claim against some Lehman subsidiaries
and another $363 million claim against Lehman's main holding
company.
That is important because Lehman treats similarly situated
creditors of its subsidiaries differently than those of the parent.
For example, general unsecured creditors of Lehman's special
finance unit, the heart of the failed investment bank's derivatives
business, have so far recovered more than 39 cents on the dollar,
though they are limited to how much they can claim. Unsecured
creditors of Lehman's commodities business have recovered more than
80 cents on the dollar, while unsecured creditors of the bank's
Lehman Commercial Corp. subsidiary have been paid in full.
In comparison, unsecured creditors of the parent were initially
slated to recover 21 cents on the dollar when Lehman's liquidation
plan went into effect in 2012. However, they have since recovered
nearly twice that amount as Lehman's wind down of its business has
brought in more cash than expected.
Credit Suisse says it expects a "non-material" loss of about $70
million to its strategic resolutions unit, a division the bank
intends to close by the end of the year.
Representatives for Credit Suisse and Lehman declined to comment
further on the settlement.
The team winding down Lehman sued Credit Suisse, one of the
world's largest derivatives dealers, in 2013, claiming the bank
artificially inflated its losses by more than $1 billion to profit
from Lehman's bankruptcy at the expense of other creditors. A trial
in the derivatives dispute had been slated for October.
Lehman's lawyers said in court papers that the settlement, which
slashes $789 million off Credit Suisse's claims against Lehman's
holding company, is a reasonable outcome given the uncertainty of
litigation and the possibility of protracted appeals.
Lehman, once the nation's fourth-largest investment bank,
collapsed into the largest bankruptcy ever in September 2008 and
its U.S. brokerage business was quickly sold off to Barclays
PLC.
At the time of its collapse, Lehman was a party to or had
guaranteed more than 10,000 derivative contracts representing more
than 1.7 million transactions, according to court documents. Lehman
also settled with JPMorgan Chase & Co. and Citigroup Inc. over
billions of dollars in allegedly "phantom losses" designed to
ensure they recovered 100% of their derivatives claims.
Lehman's postbankruptcy administrators have paid out roughly
$125 billion to creditors since 2008.
A team of bankruptcy professionals under the direction of
turnaround firm Alvarez & Marsal managed the New York holding
company's assets until Lehman's official exit from bankruptcy in
2012, when a reorganized company emerged, overseen by a new board.
The case is expected to continue for several more years as the team
liquidates the estate's assets.
U.S. Bankruptcy Judge Shelley C. Chapman will consider approval
of the settlement at a hearing scheduled for June 27.
Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com
(END) Dow Jones Newswires
June 14, 2018 02:47 ET (06:47 GMT)
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