Barclays Beats Lehman in $11B 'Windfall" Suit

Lehman Brothers Holdings Inc's hurried sale of much of its U.S. operations to Barclays Plc at the height of the financial crisis was fair, and its bankruptcy estate is not entitled to recover an $11 billion "windfall," a federal judge ruled.

The long-awaited ruling by U.S. Bankruptcy Judge James Peck followed a trial in which Lehman argued that Barclays got a sweetheart deal in acquiring its U.S. investment banking and brokerage operations.

Lehman agreed to sell that business for about $1.85 billion on September 20, 2008, just five days after the company's Chapter 11 filing became what many consider the seminal event of the global financial crisis.

"The court was not deceived in a manner that should now be permitted to upset the integrity of the sale order," Peck wrote in a 103-page opinion issued late Tuesday. "The sale process may have been imperfect, but it was still adequate under the exceptional circumstances of Lehman Week."

Peck said any disclosure lapses did not affect the "fairness" or outcome of the sale hearing. He said there was an "undeniably correct" perception at the time that the sale "mitigated systemic risk," helped avert "an even greater economic calamity," and benefited all interested parties.

"The court still would have entered the very same sale order because there was no better alternative and, perhaps most importantly, because the sale to Barclays was the means both to avoid a potentially disastrous piecemeal liquidation and to save thousands of jobs in the troubled financial services industry," he said.

Peck's ruling is a setback for Lehman, which last month projected it would have $60.1 billion to pay out to creditors, who believe they are owed six times that amount.

Kimberly Macleod, a Lehman spokeswoman, declined immediate comment, saying the company is reviewing Peck's decision.

Barclays spokesman Michael O'Looney said the British bank is pleased the court found the transaction "the product of arm's length negotiations," and that Barclays acted in good faith.

Lehman has also sued other banks including Bank of America Corp (NYSE:BAC), Canadian Imperial Bank of Commerce, JPMorgan Chase & Co (NYSE:JPM) to recover assets for creditors.

The trial over the Barclays transaction lasted 34 days stretching from April to October of last year, Peck wrote.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.