Barclays settles lawsuit over 2008 Lehman brokerage purchase

NEW YORK (Reuters) - Barclays Plc BARC.L on Friday settled a long-running lawsuit by the trustee liquidating Lehman Brothers Holdings Inc's brokerage unit, which arose from the bank's purchase of much of that unit at the height of the 2008 global financial crisis.

A Barclays sign is seen on the exterior of the Barclays U.S. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015. REUTERS/Mike Segar

The trustee James Giddens said the unit, Lehman Brothers Inc, will pay Barclays about $1.28 billion, largely representing the value of margin assets not previously paid to the British bank, plus interest.

As a result, Barclays said it will have recouped all but $80 million still in dispute, plus $255 million tied to derivative investments that it expects to receive from third parties.

Barclays expects to record a roughly $750 million pre-tax gain when it next reports financial results on July 29.

The settlement would end six years of litigation by Giddens to recoup various assets he said totaled more than $7.6 billion.

It followed the U.S. Supreme Court’s refusal on May 4 to hear his appeal of a lower court decision that upheld Barclays’ claim to $4 billion of disputed assets.

The settlement requires approval by U.S. Bankruptcy Judge Shelley Chapman in Manhattan. She oversees the liquidations of the brokerage and its former parent, which had been Wall Street’s fourth-largest investment bank.

Barclays won bankruptcy court approval to buy much of the brokerage unit on Sept. 19, 2008, four days after the parent filed for Chapter 11 protection from creditors.

Giddens said the settlement would free up $581 million he has held in reserve, plus $36 million held by the U.S. Depository Trust & Clearing Corp, for distribution to creditors.

Roughly 111,000 former customers of the Lehman brokerage have already been paid more than $106 billion, and senior creditors have also been paid in full. Unsecured creditors have recouped $5.9 billion, or 27 percent of what they are owed.

“It has always been our duty to prudently and diligently pursue every avenue of recovery for assets we believe belong to the estate,” and the settlement “achieves the best result under the circumstances,” Giddens said in a statement.

Giddens chairs the bankruptcy practice at the law firm Hughes, Hubbard & Reed.

Lehman had $639 billion of assets when it filed Chapter 11. Its bankruptcy remains by far the biggest in U.S. history.

The case is In re: Lehman Brothers Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-ap-01420.

Reporting by Jonathan Stempel in New York; Editing by Chris Reese