BarCap told to disclose Lehman information

A bankruptcy judge ruled on Wednesday that Barclays Capital had to comply with requests for information about its whirlwind acquisition of Lehman Brothers last September from Lehman’s creditors, who claim that BarCap enjoyed a windfall of more than $2bn in the deal.

At a hearing on Wednesday morning, Judge James Peck granted a motion made by lawyers representing Lehman’s creditors seeking the power to subpoena records, documents and witnesses involved in the transaction.

The ruling is a victory for Alvarez and Marsal, the firm hired by Lehman’s creditors to locate and reclaim as much of the Lehman estate’s assets as possible.

Lehman Brothers Holdings filed for bankruptcy protection on September 15, a victim of bad real estate investments and panicked selling by investors.

In the days following Lehman’s bankruptcy, Barclays swept in and negotiated the purchase of Lehman’s North American assets and pledged to hire as many as 10,000 employees of the defunct investment bank.

Barclays consolidated Lehman’s US operations into its own by the end of 2008, establishing itself as a major player in North America in equities and other businesses where Lehman was strong.

In February of this year, Bryan Marsal, acting chief executive of Lehman Brothers Holdings, wrote a letter to BarCap executives asking about a transfer of some $2bn that was supposed to be paid out in salary and bonuses for Lehman staffers in 2008.

Mr Marsal noted that only $1.3bn had been accrued for that purpose as of August 31. Of that sum, 55 per cent, or about $700m, had been earmarked for Lehman employees who had been hired by BarCap.

In his letter, Mr Marsal also referenced a sum of $2.25bn that had been accrued for “cure” costs, or payments that had to be made to keep Lehman’s operations going. Mr Marsal claimed that only $200m had been spent on such efforts.

“It’s important to us that we reconcile and understand the differential”, Mr Marsal wrote.

In response, Barclays wrote back, saying: “We reject any suggestion that there is a basis for any adjustment” to the contract signed in September.

On Wednesday, BarCap issued the following statement: “We fully intend to abide by the court’s ruling and continue to co-operate with LBHI and at the conclusion of the inquiry we do not expect any claims to be brought against Barclays.”