Analysis: Lehman bets again, 2 years after record bankruptcy

People stand next to windows above an exterior sign at the Lehman Brothers headquarters in New York in this September 16, 2008 file photo.

NEW YORK (Reuters) - Two year ago bad housing bets helped push Lehman Brothers Holdings Inc into bankruptcy. Now it hopes bets on commercial real estate -- and payoffs from lawsuits -- will help it get out of bankruptcy.

Lehman today is a shell of its former self. The tentacles of its investment business once reached throughout Wall Street, with trading operations that pulled in top traders and analysts. Now its main task is deciding the best time to sell what remains on its balance sheet.

To avoid fire-sale prices and appease thousands of demanding creditors, Lehman has deliberately held onto some assets, including real estate, mortgages, securities and even artwork, in the hopes of a stronger commercial real estate market and economy.

"They seem to have made a decision to try to ride out the market for a little while," said Stephen Lubben, a professor at Seton Hall University School of Law in Newark, New Jersey. "It's a risky strategy. If we were to get a second recession, that could come back and backfire."

A Lehman spokeswoman, Kim Macleod, said, "There's a strategy behind each asset, and we think certain assets have intrinsic value that would not be realized immediately."

Lehman is also wagering that it can boost the coffers through litigation. This includes new lawsuits on Tuesday against Canadian Imperial Bank of Commerce and others to recover more than $3 billion it said it was deprived of as a result of its record bankruptcy.

VALUING THE LEFTOVERS

The company has shrunk considerably since it filed for bankruptcy on September 15, 2008 because of a liquidity crisis.

Its $639 billion of assets at that time have fallen to $50 billion. The biggest sales were its investment banking platforms, sold within days of the bankruptcy filing, an event that brought global financial markets to a near standstill.

By this past April, Lehman filed a first draft of its plan on how to end the reorganization process and pay creditors. Lehman hopes to file an amended plan this year and win approval of a final plan in the first half of 2011.

The big question remains what Lehman's leftovers are worth and how much it will pay creditors.

In its April plan, Lehman estimated its recoverable assets at $50 billion, including $14.4 billion of real estate through affiliates such as real estate investment trust Archstone. If it were to sell these assets in 12 months, it would recover only $33 billion, the plan said.

Under its current plan, unsecured creditors would receive about 15 percent to 27 percent of their claims while some secured creditors would be paid in full.

Lehman hopes to raise $1 billion to $2 billion within 18 months by selling its stakes in its bank units Aurora, a mortgage lender and servicer, and Woodlands, a commercial lender. Up to $2 billion more could come from an initial public offering of its interest in asset manager Neuberger Berman.

But the bulk of Lehman's eventual payouts will come out of assets managed by its new asset management company, known as Lamco. It is made up of 455 former Lehman employees and will manage Lehman's real estate and private equity assets.

"They sold what they could early on at a record pace, and are trying to identify core assets around which to organize," said Jack Williams, a bankruptcy professor at Georgia State University and senior managing director at Mesirow Financial.

"It wasn't a fast-track case but it never should have been," he went on. "We have plenty of cases in the past where the bankruptcy has moved over two, three, four, five, six years. We are far away from any duration record."

LITIGATION

Lehman has also filed a series of lawsuits against deep-pocketed defendants such as Barclays Plc, Nomura Holdings Inc and JPMorgan Chase & Co that could win billions more for creditors.

But putting a finger on the exact size of any potential payout is difficult, Lubben said.

"It's impossible because of all this ongoing litigation," he said. "For example, if they were to win the case against Barclays, that's a ton of money into the estate and would no doubt make some distressed debt traders really happy."

In the Barclays case, Lehman is suing over what it calls an $11 billion windfall tied to the takeover of its U.S. investment banking business.

Separately, Lehman has sued to invalidate $2 billion of claims by Nomura, after the Japanese brokerage had bought its European and Asian operations.

Lehman has also accused JPMorgan of using its inside knowledge as Lehman's banker to extract $8.6 billion of collateral in the days ahead of Lehman's collapse. A trial is unlikely to begin before 2012.

The company also has raised the possibility of suing hedge funds. In April it subpoenaed funds including Greenlight Capital and SAC Capital Advisors over their activities ahead of its collapse.

(Reporting by Caroline Humer; Editing by Steve Orlofsky)