Thursday, March 5, 2009

Barclays Fleeced Lehman Creditors By $5 Billion

For those that remember the surreal weekend before Lehman filed chapter 11, Barclays was considered an eleventh hour white knight who would swoop in and buy the bank. These rumors were squashed after Barclays pussied out, saying it would not be able to afford Lehman without the Queen's, the Fed's and Santa Claus' blessings... Nonetheless, the bank did its diligence, and 4 days after Lehman filed, Barc used the smoke and mirrors of bankruptcy court to snatch the U.S. broker dealer for metaphorically pennies on the dollar, and literally $1.75 billion. To see how grossly the division was undervalued and just how stupid wife-beating judge James Peck was for allowing this sale to occur so fast, Barclays booked a $3.2 billion gain on the Lehman purchase, implying it had managed to sneak $1.5 billion of value out the back door, while creditors were watching their bonds plummet from 90 cents on the dollar to 15 cents.

Turns out Barclays' audacity went much further. As part of the transaction, Barclays received $4.2 billion in cash from Lehman Bros Holdco (the bankrupt entity) to cover $2 billion of bonuses and $2.2 billion of other liabilities, which Barclays was more than happy to pocket. However, new disclosure from the FT indicates that highly overpaid liquidators Alvarez & Marsal has openly questioned the validity of this transfer, claiming of the $2 billion in bonuses only $700 million was actually paid out (ironically making bankrupt Lehman one of the best bonus payers for 2008), and only $200 million of the $2.25 set aside for other liabilities was used.

Barlcays, which has not been nationalized yet, of course vehemently denied this criminal allegation, saying "Alvarez & Marsal’s position is completely without merit, baseless and a serious misunderstanding of the facts," according to Simon Eaton, a spokesman for Barclays Capital. "All of these matters were approved by the New York bankruptcy court in September 2008." So Barclays now puts the onus on the administration: well, seeing how the bankruptcy court is considering replacing judge Peck, who so foolishly approved the mother of all firesales, for his recreation of Jason Kidd's wife appreciation day, things should play out so that soon there will be nobody left to point a finger to, besides bondholders themselves who allowed this daylight robbery to occur in the first place (or maybe their overpaid lawyers who stood like toothless lepers as all this occurred, merely happy to collect their $800/hour). And since $5 billion is roughly 4 points in recovery on the Lehman bonds, which today were trading at 12 cents, these same bondholders may soon get replaced by their own LP investors for allowing 25% of value to slip thru their fingers due to laziness and stupidity. Sphere: Related Content
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