Lehman Bankruptcy Said to Cost Up to $75 Billion

[Bangkoktraveler]

Lehman Brothers Holdings Inc.â??s chief restructuring officer estimates the firmâ??s bankruptcy may have cost creditors as much as $75 billion, two people familiar with the information said.

 

Bryan Marsal, who is overseeing the bankâ??s liquidation, said creditors might have recovered $50 billion to $75 billion more if it had been wound down in an orderly way instead of hurriedly filing for court protection, one of the people said. The projected loss may change as more forensic accounting work is done, the other said.

 

While the people said more time would have allowed for more orderly accounting, Lehmanâ??s lead bankruptcy attorney, Harvey Miller, said the bank had no real alternative.

 

â??The run on the bank and the demands for collateral security by clearing banks and others had stripped Lehman of liquidity and it was threatened with further downgrades as its employees were fleeing the headquarters building,â? Miller, of Weil, Gotshal & Manges, said today in an e-mail. He said he wasnâ??t familiar with Marsalâ??s estimates, reported earlier by the Wall Street Journal.

 

Lehman filed the biggest U.S. bankruptcy in September when regulators including the Securities and Exchange Commission and New York Federal Reserve Bank indicated they wouldnâ??t prop up the bank.

 

Marsal will replace Richard Fuld as Lehmanâ??s chief executive officer this week. His New York-based turnaround firm, Alvarez & Marsal, said in November it would increase staff involved in the wind-down of Lehman to about 620 from 260 by Dec. 31.

 

Increasing Recoveries

 

Most of the new workers will be dedicated to settling Lehmanâ??s derivatives transactions in an effort to increase creditorsâ?? recoveries.

 

Lehman, based in New York, listed assets of $639 billion in court papers, a figure derived by the company from its balance sheet as of May 31 that includes about $269 billion of financial instruments. Collateralized holdings were $295 billion, consisting of securities borrowed and bought under resale agreements.

 

Lehman creditors have asserted about $200 billion in unsecured claims against the company, one person said. No estimate of creditorsâ?? recoveries has been calculated, one person said.

 

Alvarez & Marsal has been gathering data since it was hired in September, and its findings will go to U.S. Bankruptcy Judge James Peck in New York â??as a matter of public record,â? said Rebecca Baker, a spokeswoman for the firm. She declined to comment further.

 

Canceled Contracts

 

Lehmanâ??s trading counterparties canceled 900,000 derivatives contracts as a result of the bankruptcy filing, including many deals that would have profited Lehman. A few extra weeks would have given Lehman time to unwind those trades and preserve more money for creditors, according to one of the people.

 

Lehman, in federal bankruptcy court in Manhattan, received 101 objections after saying it would assume certain derivative contracts and reject others.

 

The bank, forced to settle disputes with trading partners including Barclays Plc, said Dec. 16 it had resolved 65 objections and that 30,000 derivative contracts were still open.

 

The contracts represent â??billions of dollarsâ? in value to creditors, Robert Lemons, a lawyer representing Lehman, said at a hearing.

 

Sales of assets, including Lehmanâ??s brokerage operations, brought in about $3.5 billion in cash, Miller said Nov. 20.

 

Money-Management Units

 

Lehman won court approval Dec. 22 to divest its money management units to managers of Neuberger Berman, the biggest unit, in a deal that transferred 51 percent of the stock to the executives for no cash. Lehman retained 49 percent of the equity plus dividend-paying preferred shares.

 

Sanford & Bernstein analysts valued the money-management division at as much as $7 billion earlier this year, before market declines eroded its assets.

 

Lehmanâ??s New York headquarters accounted for most of the $1.54 billion the company received from Barclays for its North American brokerage. Lehman said Dec. 9 it would sell its French investment bank to a unit of Tokyo-based Nomura Holdings Inc. for 1 euro ($1.40), in exchange for reducing liabilities.

 

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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