The US brokerage unit and a European unit of the former Lehman Brothers Holdings Inc said they settled litigation over US$38 billion of asset claims, a major step toward customers and creditors recovering money.
The announcement on Friday by Lehman Brothers Inc and Lehman Brothers International Europe (LBIE) comes four years after Lehman, once Wall Street’s fourth-largest investment bank, filed for bankruptcy at the height of the 2008 global financial crisis.
James Giddens, the trustee liquidating the brokerage unit, said the accord was a “critical milestone” that would let customers recover 100 percent of their property much sooner than if LBIE litigated claims over more than 200,000 trades.
Tony Lomas, joint administrator of LBIE, said the pact enables him to focus on distributing more than US$7 billion of assets. The agreement in principle requires approval by US Bankruptcy Judge James Peck in Manhattan — possibly in the first quarter of next year — and by the English High Court.
LBIE had been the US brokerage unit’s largest customer claimant.
The US unit announced a separate accord on Thursday with former Swiss-based derivatives unit Lehman Brothers Finance AG, reducing a US$6 billion claim to US$550 million.
Under Friday’s agreement, LBIE will be allowed US$8 billion in claims for customer accounts, which includes US$7.5 billion in securities and cash and US$500 million in cash net equity. It had earlier sought US$24 billion. LBIE will also get a US$4 billion general property claim, plus US$600 million of “post-filing income.”
Lehman Brothers Inc’s US$13.8 billion unsecured claim against the European unit will be eliminated.
Litigation will be suspended through mid-December while the parties craft a final accord.
Lehman emerged from bankruptcy in March and has paid out or plans to pay out US$33 billion of an expected US$65 billion to creditors, recovering an average of 21 cents on the US dollar. The company is also being wound down.