Barclays, After Victory, May Face Writedown of Lehman Assets

Barclays Plc, after defeating a bid by Lehman Brothers Holdings Inc. to recover an $11 billion “windfall” on its brokerage purchase, may have to write down part of a $3.7 billion gain recorded on the deal, according to a judge’s ruling and documents in a bankruptcy court trial.

The U.K.’s third-biggest bank was awarded $800 million of the $3 billion it wanted, and may get a similar amount later, according to a ruling by U.S. Bankruptcy Judge James Peck in Manhattan.

Peck at the same time denied a Barclays claim to margin and other assets, some of which it previously recorded as part of the 2.3 billion-pound ($3.7 billion) gain, according to deposition notes and court testimony of Gary Romain, the bank’s accounting specialist for the acquisition.

Barclays was the sole bidder for defunct Lehman’s brokerage in the 2008 credit crisis, taking 10,000 employees and giving 72,000 customers access to $40 billion in frozen assets. Peck said in his Feb. 22 ruling that the deal benefited all parties and helped to save everyone from “an even greater economic calamity.”

The trustee liquidating the remnants of New York-based Lehman’s brokerage said Feb. 22 that he had won $4.8 billion of assets away from Barclays.

“For $4.8 billion, Barclays will likely appeal,” said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky, who has written articles on the case and isn’t involved in it. “I think they have a good chance to prevail on appeal.”

Barclays Spokesman

Michael O’Looney, a spokesman for London-based Barclays, declined to comment.

Barclays fell as much as 2.2 percent in London trading today, and was at 316.25 pence, off 2.75 pence, or 0.86 percent at 9:44 a.m. New York time. This month the bank reported net income for 2010 of 3.56 billion pounds ($5.8 billion), showing a smaller decline than analysts expected as investment-banking profit almost doubled and writedowns shrank.

Peck wasn’t specific in his ruling about some amounts Barclays won or must forfeit. He invited lawyers for Lehman, its creditors, the trustee and Barclays to propose orders spelling out details within 10 days.

“It will be interesting to see whether Barclays seeks reconsideration or clarification,” Bowles said in an e-mail.

The 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: John Pickering at jpickering@bloomberg.net.

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