Lehman administrators settle on $12.6bn claim from US arm

LEHMAN BROTHERS’ PWC ADMINISTRATORS have agreed a $12.6bn (£7.8bn) settlement over claims against the collapsed US parent company.

PwC partners were appointed joint administrators to the UK subsidiary LBIE on 15 September 2008 – the US arm also filed for bankruptcy in early September.

However, PwC’s administrators of the collapsed investment bank have been embroiled in an argument with the liquidators of Lehmans in the US over billions of dollars.

The administrators had filed total claims against the US arm Lehman Brothers Inc (LBI) for $24bn (£14.8bn), which consisted of a claim of $15.1bn and another for $8.9bn.

However, the US arm issued claims against the UK administrators for $13.8bn.

Now, the two sets of practitioners handling the insolvencies have reached an agreement that will see Lehman Brothers International Europe (LBIE) walk away with $12.6bn – and the US liquidators with nothing.

The deal comprises three elements. The first sees the administrators reduce the $8.9bn claim to $4.5bn. The US will pay the administrators $500m on settlement, with the UK arm becoming an unsecured creditors for the remaining $4bn paid as an unsecured creditor. Unsecured creditors are paid with funds left after secured creditors – such as lenders – are paid out.

The UK arm will receive $600m in interest for client funds held by the US liquidators, as well as receive $7.5bn for trust accounts held in the US on behalf of UK clients.

In exchange, the US liquidator has dropped its $13.8bn claim against the UK arm.

“Achieving a final resolution with [the US liquidators] will be the most significant step in LBIE’s administration to date, and having this coincide with our first interim distribution will enable us to plan a much earlier second distribution than would otherwise be the case,” said PwC partner and joint administrator Tony Lomas.

In November 2011, the administrators applied for an extension of the administration for five years. At that point, Tony Lomas, Steven Pearson, Derek Howell, Russell Downs and Paul Copley were appointed administrators.

The original partners appointed to LBIE in 2008 were Tony Lomas, Steven Pearson, Dan Schwarzmann and Mike Jervis.

They hope to make a payment to creditors at the end of the year.