Lehman Brothers' U.S. brokerage on Tuesday finalized settlements with the former financial giant's parent and European entities, resolving nearly $44 billion in customer claims and paving the way for full repayment to the brokerage's former customers.
Though deals were initially announced last year, details were ironed out and revealed in court papers and statements by the parties on Tuesday. Lehman's parent will be allowed a $2.3 billion customer claim against the brokerage, down from the $19.9 billion it had initially sought, papers show.
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Lehman's European unit will receive a $9 billion customer claim, reduced from the $24 billion originally asserted.
The parent will also receive $14 billion in lower-priority unsecured claims against the brokerage, while the European arm will get a $4 billion unsecured claim.
Lehman and several affiliates filed the largest-ever U.S. bankruptcy on September 15, 2008, with $639 billion in assets.
The intercompany claims had been the final key disputes keeping the trustee who is liquidating Lehman's brokerage, James Giddens, from making full payouts to customers.
The settlements should allow for full payout, Giddens said in a statement on Tuesday. Leftover money would be paid to other classes of unsecured creditors, though it remains unclear how much they could receive.
Giddens called the four-year negotiations "arduous."
"We are delighted that these agreements have been reached," he said in the statement.
The deals are subject to approval by U.S. Bankruptcy Court in Manhattan; a hearing is set for April 16. The European unit's settlement needs approval by an English court.
Daniel Ehrmann, co-head of derivatives for the Lehman parent, said the deal "avoids costly and extensive litigation, and contributes significantly to recoveries for" the parent's creditors.
Lehman is in the midst of repaying about $65 billion to creditors of its parent and other subsidiaries under a liquidation plan approved in late 2011.
Tony Lomas, one of the administrators liquidating Lehman's European unit, called that unit's settlement a "defining transaction" that resolves "the most complex inter-affiliate" dispute in Lehman's insolvency.
The U.S. brokerage will keep $777 million in reserve as it continues to litigate legal claims from Barclays over that company's purchase of the brokerage's assets in 2008, according to court papers.
The bankruptcy is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
The brokerage liquidation is In re Lehman Brothers Inc, in the same court, No. 08-1420.
(Reporting By Nick Brown; Editing by Leslie Adler)