Lehman Swiss Unit Loses Bid for $1.5 Billion in Assets

(Corrects processing date in seventh paragraph.)

Lehman Brothers Holdings Inc. (LEHMQ)’s former Swiss unit lost its bid to seize some of the $1.5 billion of securities frozen at the bank’s London operation after its failure.

The U.K. Court of Appeal rejected Switzerland-based Lehman Brothers Finance SA’s claim to the so-called Rascals assets, which were caught up in the bank’s internal-settlement system when it collapsed into administration in September 2008.

While the Swiss unit said it was the owner of securities acquired on its behalf, Judge Timothy Lloyd ruled the assets should remain with Lehman Brothers International Europe and its administrators PricewaterhouseCoopers LLP.

Lehman used internal repurchase agreements and stock loans to avoid regulatory charges on securities held by its European units, a system Lloyd described as “a mess” in his written judgment. Securities were purchased through the U.K unit and placed into the “Regulation and Administration of Safe Custody and Global Settlement” system, known as Rascals, before being sold to clients, according to the judgment.

The status of the Rascals assets has been the subject of a legal battle between Lehman Brothers International Europe and other European subsidiaries.

Lehman filed bankruptcy in September 2008, plunging global financial markets into turmoil. Its London unit, now in the hands of the administrators, has been involved in lawsuits with the parent company in the U.S. and affiliates throughout Europe over billions of dollars frozen in its accounts.

Manually Processed

Lloyd left open the possibly that Lehman Brothers Finance SA could claim Rascals assets manually processed through stock loans after July 31, 2008. They belonged to the Swiss unit “at the moment of the group’s collapse,” unless Lehman Brothers International Europe can show it paid collateral on the securities.

“Those possibilities need to be kept open, so as to be capable of resolution by a judge if the parties cannot agree the position,” Lloyd said.

“We are pleased with the outcome of the appeal and are now reviewing the detail of the judgment,” Stephanie Howel, a PwC spokeswoman in London, said in an e-mailed statement.

The case is: In the Matter of Lehman Brothers International (Europe)(In Administration), case no. 7942/2008, High Court of Justice, Chancery Division (London).

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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