Lehman Brothers has ended the largest-ever corporate bankruptcy, emerging from Chapter 11 and announcing it will begin making its first payouts to clients next month.
However, many disputes surrounding the defunct investment bank remain, including the bankruptcy of Lehman’s UK subsidiary, to which billions of dollars of customer cash were funnelled, and multibillion-dollar lawsuits against JPMorgan Chase and Citigroup.
Though Lehman as it once was no longer exists, with its core broker-dealer businesses sold to Barclays Capital and Nomura in 2008, Lehman’s parent holding company remains in business to manage the sale of assets. The creditors agreed to this plan to give the estate time to maximise value rather than liquidating in a fire sale.
These efforts include wresting full ownership of Archstone, the property management group, from co-owners Bank of America and Barclays. The banks have agreed to sell their remaining one-quarter stake to Equity Residential, the property group controlled by Sam Zell, but Lehman is objecting to that transaction.
The reorganised Lehman’s board of directors includes top banking executives such as Owen Thomas, former chief executive of Morgan Stanley Asia, who is expected to become chairman. Its offices remain across the street from Lehman’s one-time Manhattan headquarters, now occupied by Barclays Capital, with some 430 staffers.
Lehman’s managers had at one point hoped to spin out an asset management company, called Lamco, that would give equity to employees who had remained with the estate. But creditors rejected the plan, citing its cost.
The estate has so far collected $28bn in cash by selling assets such as artwork by Takashi Murakami, via a Sotheby’s auction, and stakes in ski resorts. Lehman projects to have some $65bn once Archstone and other assets, including two deposit-taking banks, are finally sold, to cover over $350bn in claims. That would enable the estate to pay roughly 18 cents on the dollar.
Some investors that bought Lehman debt at distressed prices will probably have turned a profit. For example, Paulson & Co, the hedge fund, may make a profit of some $550m in the final tally. Bondholders are set to receive 21.1 cents on the dollar for their debts.
Other winners include the managers of the bankruptcy process. There were a record $1.6bn in fees racked up for lawyers and other professionals, including $512m for Alvarez & Marsal, the restructuring firm that has run the Lehman estate.
The fees attracted criticism by creditors, who appointed Kenneth Feinberg, the former Wall Street “pay tsar”, to monitor the payments.
However, at around 0.2 per cent of Lehman’s $691bn in assets at the time of its bankruptcy, the fees were small compared to the 1 to 2 per cent spent in the Enron and WorldCom cases, according to the UCLA-LoPucki Bankruptcy Research Database.
Additionally, despite its size and complexity, Lehman’s bankruptcy ended relatively speedily, at just under three-and-a-half years. Delphi Automotive, for example, spent four years in Chapter 11.
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