The Wall Street Journal
Barclays PLC is firing back in a court filing at accusations that the bank pocketed a secret windfall when it bought Lehman Brothers Holdings Inc.'s core U.S. operations days after it collapsed.
In its first detailed response to Lehman's allegations, London-based Barclays said the failed investment bank is making "a gross distortion" about the complex negotiations over the sale of Lehman's broker-dealer business. Barclays said Lehman and its creditors, which are fighting to claw back billions of dollars in assets, simply want to rewrite the terms of the deal because it was "too good for Barclays."
The filing is a response to claims by Lehman and its creditors that Barclays received possibly $12 billion in excess assets that were never disclosed. Lehman said the final details of the deal "bore little or no relation" to what was approved by the judge overseeing Lehman's bankruptcy case.
Barclays Capital agreed to buy the business a day after Lehman's bankruptcy filing in September 2008. After scrambling to put together the agreement, both sides continued to hammer out details while grappling with Lehman's deteriorating assets in the wake of its collapse, according to court documents.
At one point during those negotiations, as Barclays replaced the Federal Reserve's position in a repurchase agreement with Lehman, it received far less than the nearly $50 billion in securities it was supposed to get in exchange for $45 billion in cash it advanced to Lehman, Barclays said in the Friday court filing. The problem, which created "massive uncertainty and risk," wasn't rectified for months, it added.
Barclays also said it is still owed $3 billion in additional assets that it never received from the Lehman sale.
Lehman spokeswoman Kimberly Macleod said in a statement Friday that the deal at the time was described to Lehman's board and the court "as an equivalent exchange of value, with no embedded gain for Barclays."
"Because the court was never told, it never approved such a gain for Barclays," she said.
The court-appointed trustee, who is in charge of liquidating Lehman's broker-deal unit and who has joined Lehman's effort to recover assets, said in a statement that Barclays's argument is based on "strained interpretations of the sale agreements."
The filing is a response to claims by Lehman and its creditors that Barclays received possibly $12 billion in excess assets that were never disclosed. Lehman said the final details of the deal "bore little or no relation" to what was approved by the judge overseeing Lehman's bankruptcy case.
Barclays Capital agreed to buy the business a day after Lehman's bankruptcy filing in September 2008. After scrambling to put together the agreement, both sides continued to hammer out details while grappling with Lehman's deteriorating assets in the wake of its collapse, according to court documents.
At one point during those negotiations, as Barclays replaced the Federal Reserve's position in a repurchase agreement with Lehman, it received far less than the nearly $50 billion in securities it was supposed to get in exchange for $45 billion in cash it advanced to Lehman, Barclays said in the Friday court filing. The problem, which created "massive uncertainty and risk," wasn't rectified for months, it added.
Barclays also said it is still owed $3 billion in additional assets that it never received from the Lehman sale.
Lehman spokeswoman Kimberly Macleod said in a statement Friday that the deal at the time was described to Lehman's board and the court "as an equivalent exchange of value, with no embedded gain for Barclays."
"Because the court was never told, it never approved such a gain for Barclays," she said.
The court-appointed trustee, who is in charge of liquidating Lehman's broker-deal unit and who has joined Lehman's effort to recover assets, said in a statement that Barclays's argument is based on "strained interpretations of the sale agreements."
Lehman's lawyers have previously said that Lehman executives who negotiated the deal on behalf of the company "secretly structured" the agreement so that Barclays received a $5 billion discount on the value of securities it took when it replaced the Fed financing, plus billions of dollars in additional assets after the sale was approved.
But Barclays called this hidden discount "a fiction." Lehman, it said Friday, is relying on stale values for the securities that were delivered to Barclays under the repo. These assets were worth "little more" than the $45 billion in cash advanced to Lehman, it said.
The bank also argued in the filing that the extra assets added to the deal were disclosed to the court before the sale was approved and that the agreement never put a cap on the value of what they might be worth. It rejected Lehman's claim that the deal was structured as a "wash," with the assets equaling the liabilities it was assuming. Barclays made clear from the start, it said, that it expected to see an immediate accounting gain from the deal.
Barclays in February reported a gain of more than $4 billion from the sale, according to an earlier court filing by Lehman Brothers. In its court filing Friday, Barclays said that result was "far from guaranteed," given the turmoil rippling through global financial markets at the time, it said.
"One thing was certain, however: had the deal turned out differently, such that the plain text of the purchase agreement caused Barclays to incur a loss because the assets were worth even less than feared, Barclays would not have had the right to come back to court a full year later to ask for revised terms," Barclays said in its court filing.
But Barclays called this hidden discount "a fiction." Lehman, it said Friday, is relying on stale values for the securities that were delivered to Barclays under the repo. These assets were worth "little more" than the $45 billion in cash advanced to Lehman, it said.
The bank also argued in the filing that the extra assets added to the deal were disclosed to the court before the sale was approved and that the agreement never put a cap on the value of what they might be worth. It rejected Lehman's claim that the deal was structured as a "wash," with the assets equaling the liabilities it was assuming. Barclays made clear from the start, it said, that it expected to see an immediate accounting gain from the deal.
Barclays in February reported a gain of more than $4 billion from the sale, according to an earlier court filing by Lehman Brothers. In its court filing Friday, Barclays said that result was "far from guaranteed," given the turmoil rippling through global financial markets at the time, it said.
"One thing was certain, however: had the deal turned out differently, such that the plain text of the purchase agreement caused Barclays to incur a loss because the assets were worth even less than feared, Barclays would not have had the right to come back to court a full year later to ask for revised terms," Barclays said in its court filing.
