Lehman’s Year-End Fees, Filings Match Up With Biggest Bankruptcy

Lehman Brothers Holdings Inc., which aims to pay creditors $65 billion by 2016 or so, enters the New Year with statistics to match the biggest-ever bankruptcy it filed more than four years ago.

The defunct investment bank added 10,000 filings to its court docket in 2012, bringing the total toward 33,000, as it slashed 67,000 payment demands for $1.2 trillion by almost 70 percent to $370 billion. It paid advisers $600 million in its last year of bankruptcy, or a total of $1.8 billion since 2008.

By contrast, Bernard Madoff’s brokerage, which also collapsed in 2008, counts 5,162 filings and 16,519 claims for $17.3 billion of lost principal; its advisers took $646 million. AMR Corp., the American Airlines parent that filed for bankruptcy a year ago, has more than 5,800 filings and accrues professional fees of about $15 million to $20 million a month.

Lehman, once the fourth-largest investment bank, is still liquidating from offices in Manhattan’s Time & Life Building after exiting bankruptcy in March. It herded creditors such as Goldman Sachs Group Inc. (GS) into groups during the credit crisis and issued 379 bulk objections to their claims. Lehman also settled a fight with creditors in a payment plan that allotted more money to derivatives claimants including Goldman Sachs and less to bondholders such as Paulson & Co. Both groups proposed rival plans to pay Lehman’s debt.

Lehman collected $16.8 billion from 1.7 million derivatives trades and agreed to sell apartment owner Archstone Inc. for $6.5 billion, after a court fight with one of the eventual buyers, Sam Zell’s Equity Residential.

Lifetime Case

“The Lehman case is and was the most unique and different bankruptcy/restructuring case to emerge since the inception of a bankruptcy law in the U.S.,” said Harvey Miller, the Weil Gotshal & Manges LLP partner who has been Lehman’s lead lawyer since the bankruptcy. “It was the case of a lifetime, both frustrating and gratifying, sometimes almost concurrently.”

Lehman’s fee bills are “not excessive,” Miller said, considering the “almost miraculous result” of the case, which ended with Lehman winning creditors’ backing for its liquidation plan.

Traders turned over an average of $2 billion of claims on Lehman a month, or $100 billion from September 2008 through November 2012, according to SecondMarket Holdings Inc. Trades in the MF Global Inc. brokerage formerly headed by Jon Corzine have totaled $4.6 billion since it filed the eighth-biggest U.S. bankruptcy in October 2011, the data firm said. AMR trading is about $740 million.

Small Number

About the only small number associated with Lehman is the 18 cents on the dollar it has said its average creditor will get eventually. Enron Corp.’s payback to general unsecured creditors was about 53 percent through October, albeit with a long wait; the former energy trader came out of bankruptcy in 2004, and has almost 32,000 filings on its docket. Lehman has already made two payments totaling almost $33 billion, or about 9 cents on the dollar.

“We have been executing on our plan for managing and monetizing assets, mitigating claims and making cash distributions to creditors and will continue to do so in 2013,” said Lehman Chief Executive Officer John Suckow, an executive of restructuring firm Alvarez & Marsal. Just this year, Lehman has collected about $16 billion from assets and receivables.

The word “unprecedented” appears six times in Alvarez & Marsal’s June request for $91 million in incentive fees for managing the large-scale bankruptcy, after making hourly fees totaling almost $536 million. Lehman judge James Peck awarded $42 million in incentives, saying A&M “voluntarily” reduced them.

Fee Bonanza

The U.S. Trustee who supervises bankruptcies for the Justice Department, Tracy Hope Davis, has objected to the Lehman fee bonanza. Using Gleacher & Co. as an adviser for months without officially hiring the firm, Lehman ran up fees that were “not reasonable,” Davis said. She criticized creditors such as Goldman Sachs, who fought Lehman to improve their own payout, then asked the bankrupt estate to pay their lawyers.

The Madoff brokerage trustee, who topped Lehman in litigation by filing 1,000 lawsuits, has gathered $9.3 billion, or more than half of the $17.3 billion claimed by the con man’s investors. He has paid $3 billion from a customer fund. Some customers have been fighting for interest payments or fake profit on their account statements.

Worst Slump

Lehman, run by Chief Executive Officer Richard Fuld when its collapse helped bring on the worst economic slump since the Great Depression, filed bankruptcy in September 2008 with assets of $639 billion. It failed because of too much debt and risky real estate investments, according to a bankruptcy examiner’s report.

Recalling the chaos after Barclays Plc (BARC) bought bankrupt Lehman’s North American business, Miller said, “Lehman had no employees, no effective information systems and was confronted by over 50 different international insolvency proceedings challenging Lehman’s claims to various assets. Essentially, the administrators and professionals at Lehman started from ground zero.”

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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