Lehman Completes Plan to Save Aurora, Woodlands Banks

Lehman Brothers Holdings Inc. completed a $1.6 billion plan to save Aurora Bank FSB and Woodlands Commercial Bank from being seized by regulators, said Douglas Lambert, a director of the two banks.

After a settlement with regulators, “both institutions are now well capitalized, and can resume normal banking operations for the first time in 26 months,” he said in an interview today.

Bankrupt Lehman said in September that past and future capital infusions into the banks would total $1.6 billion. By spending the money, Lehman aimed to save creditors from potential priority claims of $2.7 billion and recoup an estimated liquidation value of $2 billion, it said in a September filing in U.S. Bankruptcy Court in New York. Lehman said it planned to sell or close the banks.

The infusion was completed this week in a closing with regulators, said Lambert, an executive of the Alvarez & Marsal restructuring firm that runs Lehman’s bankruptcy. If the banks had failed, the Federal Deposit Insurance Corp.’s insurance fund and creditors of Lehman would have been losers, he said.

Woodlands is based in Salt Lake City. Aurora is in Wilmington, Delaware.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net

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