Lehman estate drops $11bn Barclays suit

Lehman Brothers’ estate has abandoned an $11bn lawsuit against Barclays, providing a boost for the UK bank and bringing the most expensive US bankruptcy of all time closer to resolution.

Barclays has been wrangling with the estate, which accused the UK group of securing a “secret discount” during its 2008 acquisition by the UK group of Lehman’s North-American broker-dealer. A New York judge had rejected the estate’s claim, but Barclays had faced an appeal.

However, the Lehman estate said on Wednesday: “While there are aspects of the decisions with which we do not agree, we are also cognisant of the burdens that continued litigation of these issues would place on the court and the assets of the estate.

“We have determined that we will not pursue these issues through appeals, believing that the resources of the court and the estate will be better employed at this point to move the bankruptcy toward a conclusion.”

James Peck, the US bankruptcy judge overseeing the proceedings, had ruled in February that there was no “wilful misconduct” from Barclays during its acquisition, concluding that the sale was fair and awarding no money to the estate. The estate had claimed Barclays had reaped a “windfall” to which it was not entitled when it negotiated the acquisition.

Last week, Barclays won a separate legal wrangle with the estate when Mr Peck rejected a claim that it should have paid $2bn in bonuses to Lehman employees but only paid $1.5bn.

“This is a tremendous development for Barclays because it removes a $13bn appeal and confirms their good-faith purchase of the Lehman assets in a financial crisis,” said Jonathan Schiller, managing partner of Boies, Schiller & Flexner, who represented the bank.

The decision not to press ahead with an appeal removes another issue from the vastly complex bankruptcy, for which lawyers and consultants have billed more than $2bn in fees. It extricates Barclays from claims, but the group is persisting with its own suit against the Lehman estate, claiming it is owed $2bn in cash collateral held against derivatives positions.

Lehman has prepared a $65bn pay-out plan to creditors, which have claims of more than $300bn. The plan is scheduled to go to a vote in November and would then go to court for approval at a heading starting on December 6.