By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Lehman Brothers Holdings Inc. (LEHMQ) has struck a deal with
J.P. Morgan Chase & Co. (JPM) to drastically slash a $710
million claim the bank filed against Lehman's bankruptcy estate,
and it plans to distribute money J.P. Morgan was holding to satisfy
the claim to its other creditors soon.
In a Wednesday filing with U.S. Bankruptcy Court in Manhattan,
Lehman said $699.2 million of the claim, which is related to
third-party investment funds, will go to Lehman creditors, and the
failed investment bank is asking for a quick hearing on the matter.
The settlement needs bankruptcy court approval, and Lehman wants to
be able to distribute the money during its first creditor
distribution, which could be as soon as March 31.
The claims are related to 70 investment funds that got advice
from J.P. Morgan. The bank was trying to satisfy, on those funds'
behalf, claims using collateral that J.P. Morgan got from Lehman
the week before its September 2008 bankruptcy filing.
J.P. Morgan spokesman Joe Evangelisti said there's "no financial
impact" to the bank from the Lehman deal.
Under the terms of the settlement, the J.P. Morgan funds will
give $699.2 million that's currently being held as collateral to
Lehman, and the money will be disbursed to other Lehman creditors.
Judge James Peck of U.S. Bankruptcy Court in Manhattan has
scheduled a hearing for Feb. 15 on the deal. In return, J.P. Morgan
will have some other claims reinstated and get $15 million in
cash.
"After the Funds' return of the $699.2 million, the Funds will
only be recovering two percent of their total claims against LBHI,"
Lehman said in the Wednesday filing. Lehman, in fighting the claim
last October, said that J.P. Morgan's attempt to treat those funds
like they were subsidiaries "runs contrary to all notions of fair
and equitable treatment of creditors."
The $710 million is actually a rather small chunk of a larger
dispute between Lehman and J.P. Morgan, as Lehman is also trying to
drastically reduce another nearly $30 billion in claims that J.P.
Morgan has filed in the Chapter 11 case. Lehman declined to comment
on those efforts.
Since the beginning of the more than three-year-old case, J.P.
Morgan has held the dual role as both a key Lehman adversary and
one of the largest holders of claims against both the Lehman parent
company and its subsidiaries. With Lehman's creditor-payment plan
now approved by the court, the failed investment bank's lawyers are
identifying claims they can reduce in order to determine how the
money will be divvied up among those seeking recoveries. Lehman
aims to start returning money by the end of the first quarter.
Aside from the claims' dispute, the two sides are suing each
other over what happened in the tumultuous days of September 2008,
with Lehman alleging J.P. Morgan illegally siphoned billions of
dollars from Lehman just before the bankruptcy and J.P. Morgan
countering that Lehman used "collusion and deception" when it told
J.P. Morgan that an emergency loan it made was backed by $70
billion in securities.
Lehman collapsed into the largest bankruptcy in history in
September 2008, and since then a team of bankruptcy professionals
under the direction of Alvarez & Marsal Inc. has managed its
assets, including real-estate holdings, corporate debt and
derivatives.
Peck in early December approved Lehman's creditor-payback plan,
which should distribute about $65 billion and treats creditors of
Lehman subsidiaries better than those of the parent company.
Despite the confirmation of the plan, the company still has
billions of dollars in real estate and other assets and will
continue to exist as it unloads and manages those investments.
Late last week, Lehman said it wants to soon begin distributing
about $10.7 billion to its creditors.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler; Dow Jones Newswires; 212-416-2152;
joseph.checkler@dowjones.com