(Corrects first paragraph to show that deposits were seized
after, rather than before, Lehman bankruptcy filing)
Nov 17 Bank of America Corp (BAC.N) was ordered
by a U.S. judge to return $500 million of deposits it seized
from Lehman Brothers Holdings Inc LEHMQ.PK shortly after
Lehman's record bankruptcy in September 2008.
According to court papers, Lehman had deposited the money
in August 2008 as collateral so Bank of America could continue
to honour Lehman's checks at times when no funds were on
deposit, effectively extending an unsecured line of credit to
Lehman pending the clearance of deposits.
In November 2008, after Lehman went bankrupt, Bank of
America seized the money as a set-off against claims it held
against Lehman on an unrelated derivative transaction, and then
sued to validate the seizure.
"It is difficult to understand how BofA could have thought
that taking the money was the right thing to do without first
seeking permission from the court," Judge James Peck said.
"The court believes that the actions taken were surprising
and, quite frankly, disappointing for a leading financial
institution that should care a great deal about its
reputation," he said.
A Bank of America spokesman did not immediately return a
call seeking comment.
Lehman filed for Chapter 11 two years ago, in the
largest-ever U.S. bankruptcy.
British bank Barclays Plc (BARC.L) bought Lehman's main
U.S. brokerage business after the bankruptcy filing, and
Lehman's other assets are being managed and unwound while
operating under bankruptcy protection.
The case is Bank of America NA v. Lehman Brothers Holdings
Inc et al, U.S. Bankruptcy Court, Southern District of New
York, No. 08-01753. The main bankruptcy case is In re: Lehman
Brothers Holdings Inc in the same court, 08-13555.
(Reporting by Santosh Nadgir in Bangalore; Editing by Don
Sebastian, Dave Zimmerman)