Lehman creditors demand investigation into JPMorgan

Creditors of collapsed Lehman Brothers have asked a US judge to allow an investigation into whether JPMorgan played a role in weakening the investment bank as it headed towards bankruptcy.

Creditors of collapsed Lehman Brothers have asked a US judge to allow an investigation into whether JPMorgan played a role in weakening the investment bank as it headed towards bankruptcy.

The creditors committee filed the request in court documents yesterday.

The committee believes Lehman Brothers Holdings had more than $17bn (€12.2bn) in cash and securities held at JPMorgan Chase & Co before its bankruptcy filing but that JPMorgan froze the assets on September 12, three days before Lehman filed for bankruptcy court protection. Its case is the biggest in US history.

"The creditor's committee believes that as a result of JPMC's actions, LBHI suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired," lawyers for creditors wrote in court papers.

"In freezing LBHI's assets, JPMC was purportedly holding all of LBHI's assets as a potential offset against any claims."

JPMorgan provided billions in clearing advances - short-term loans investment banks use to clear trades on a daily basis - to Lehman in the days around its bankruptcy filing.

Lehman disclosed last week that JPMorgan was its biggest creditor, holding secured claims worth an estimated $23bn (€16.5bn).

A spokesman for JPMorgan Chase declined to comment yesterday. US Bankruptcy Judge James Peck will consider the creditors' request on October 16.

Meanwhile, the US government's pension insurance agency objected to Lehman's sale of its North American investment banking and trading operations to British bank Barclays Capital, a deal that closed on September 22.

Lawyers for the Pension Benefit Guaranty Corporation argued that Lehman had not said whether it would use any of the proceeds from the sale to shore up its pension plan, which covers 25,000 former and current employees.

If the plan were to be terminated today, Lehman would need to add $72.5m (€52.2m) to make the plan whole.

A raft of vendors have also filed objections to Lehman's cancellation or transfer of contracts. Objectors included the Chicago Mercantile Exchange, Cisco Systems, Bloomberg and Sun Microsystems.

Lehman Brothers entered bankruptcy protection on September 15 with assets of 639bn (€460.8bn) and debt of $613bn (€442.1bn).

It was forced to file for bankruptcy protection under pressure from the shrinking credit markets and a loss of confidence among investors that it could carry on its day-to-day business.

That marked an end to what was once America's fourth-largest investment bank.

In addition to the Barclays buyout of key US units, Lehman has sold its money management arm, Neuberger Berman, to two private equity firms and its Asian, European and Middle Eastern businesses to Japan's largest brokerage, Nomura Holdings.

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