Barclays Battle With Lehman Unit Brings $5.5 Billion

Barclays Plc (BARC) has won as much as $5.5 billion from the liquidator of Lehman Brothers Holdings Inc.’s brokerage since buying the defunct investment bank’s North American business more than three years ago.

A federal judge in Manhattan yesterday told the brokerage to pay Barclays what it owed, saying the final sale documents showed the parties’ true intent. James Giddens, the brokerage trustee, originally demanded $7 billion from Barclays, saying he hadn’t read last-minute changes to the contract in the September 2008 chaos after the Lehman parent filed the biggest bankruptcy in U.S. history.

U.S. District Judge Katherine Forrest ordered Giddens to pay London-based Barclays $1.1 billion and renounce his claim to $1.5 billion in margin assets backing trading operations that Barclays took over from Lehman. In confirming part of a lower- court decision, Forrest cost Giddens a total of $3.5 billion in margin and $2 billion in clearance-box assets, held to clear trades, the trustee said yesterday.

Barclays rose 8.2 percent to 187.80 pence in London trading.

The dueling between the second-biggest U.K. bank and Giddens, who also is liquidating the MF Global Inc. brokerage, followed a 2010 court trial before U.S. Bankruptcy Judge James Peck in Manhattan. Both sides challenged Peck’s order on the disputed assets, and Giddens said he plans to appeal Forrest’s ruling.

‘Our Duty’

“We strongly believe that the former customers of Lehman Brothers Inc. are entitled to these assets,” Giddens said in an e-mailed statement yesterday. “Our duty to customers mandates that we continue to pursue all legal avenues to recover the assets.”

Barclays’s victory won’t help it in the U.S. Court of Appeals, said Stephen Lubben, a bankruptcy law professor at Seton Hall University School of Law in Newark, New Jersey.

“Basically, they both start from square one” in a dispute over contract interpretation, he said. “This won’t be over until the Second Circuit weighs in.”

Giddens has reserved money for the Barclays litigation and still intends to pay some money to the brokerage’s creditors by the end of the year, he said.

“We are gratified by the court’s decision confirming that Barclays is entitled to the Lehman assets it purchased in September 2008,” the bank’s litigation lawyer, Jonathan Schiller of Boies, Schiller & Flexner LLP, said in an e-mail.

Sole Bidder

Barclays, the sole bidder for Lehman’s business in the 2008 financial crisis, took over most of the brokerage’s retail customers. Hedge funds and other large creditors haven’t been paid yet.

The Lehman parent is still buying and selling assets after exiting bankruptcy to pay creditors an average of about 18 cents on the dollar. The defunct firm had sought an $11 billion “windfall” it alleged Barclays made on the 2008 purchase. Peck rejected that demand and Lehman dropped its appeal of his ruling.

Lehman filed for bankruptcy with $613 billion in debt.

The district court case is Giddens v. Barclays Capital Inc., 11-cv-06052, U.S. District 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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