Barclays Asked Fed About Aid When It Bought Lehman Brokerage, Lawyer Says
Barclays Plc asked the Federal Reserve whether the U.S. government would guarantee liabilities the U.K. bank had to assume when it bought bankrupt Lehman Brothers Holdings Inc.’s brokerage, a lawyer on the deal said.
The U.S. said no aid would be available, Victor Lewkow, who represented Barclays in the Lehman transaction, testified today in U.S. Bankruptcy Court in Manhattan. The Fed told Barclays there would be no repeat of the government’s guarantee of liabilities “as an incentive” to JPMorgan Chase & Co. to buy Bear Stearns Cos., Lewkow said.
“The government guaranteed a whole series of contingent liabilities, limiting JPMorgan’s liabilities,” Lewkow said. “It was made clear that would not be repeated.” Barclays did borrow from the Fed while arranging the purchase, he said.
Barclays bought the brokerage business in September 2008, a week after Lehman filed for bankruptcy. Lewkow, a partner at Cleary Gottlieb Steen & Hamilton LLP, was called to testify in a trial to determine whether Barclays should pay Lehman as much as $11 billion for making an allegedly undisclosed “windfall” on the purchase.
The trial before U.S. Bankruptcy Judge James Peck, who approved the deal in 2008, pits the U.K.’s third-biggest bank against Lehman, which wants money from Barclays to pay creditors.
A recovery in the case would help Lehman creditors, who may recoup only 15 cents to 44 cents on the dollar, Lehman has said, and hurt Barclays, which made 2.4 billion pounds ($3.7 billion) in the first half.
Business Risk
Lewkow said Barclays took a business risk as well as a financial risk on the deal. Even in stable times, acquirers such as General Electric Co. have paid a high price for a brokerage and later spent money unsuccessfully to expand it, he said.
“The one that comes to mind is GE, who bought Kidder Peabody,” he said. “They spent a lot of money to try to build it and ended up selling it at a substantial loss.”
Lehman has said Peck didn’t have all the facts before him when he approved the sale.
Lehman’s lead lawyer on the Barclays deal, Harvey Miller, explained the transaction to Peck when it was up for approval in 2008, Lewkow said. Miller told the judge at the time that changes would be spelled out in a clarification letter, Lewkow testified.
Clarification Letter
Miller believed the clarification letter, describing new assets Barclays was entitled to, didn’t change the essence of the deal and needn’t be taken to Peck, Lewkow said.
Describing a meeting at Miller’s firm, Weil Gotshal & Manges LLP, Lewkow said, “Miller said it seems to him we haven’t done anything that needs to go back to court, and does anyone disagree. No one likes to disagree with Mr. Miller, but we didn’t.”
Miller testified earlier in the trial that Barclays was buying a business, and adjustments in assets being transferred didn’t change that.
The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Linda Sandler in U.S. Bankruptcy Court in New York at +1- lsandler@bloomberg.net.
Rate this Page