Barclays in the clear over $11bn Lehman Brothers lawsuit

Barclays was guilty of nothing more than bagging a bargain when it bought Lehman's US arm, a court decides.

by James Taylor
Last Updated: 19 Aug 2013
Barclays' acquisition of the US operations of collapsed investment bank Lehman Brothers in September 2008 has turned out to be a pretty good deal for the UK bank: it paid a measly £1.85bn for the unit, which has been generating fat profits ever since. Lehman's estate reckoned the deal was a bit too good; it sued Barclays for $11bn in damages, suggesting it got special treatment. But happily for Barclays, a US judge has just ruled that although the process may have been 'flawed' and 'imperfect', it wasn't unfair. In other words, Barclays just took advantage of some unprecedented circumstances to get a cracking deal...

Now that the banking system is back on a fairly even keel (at least for now), it's easy to forget just how chaotic and frenetic that week was back in September 2008 - and, some would argue, how close the whole system came to complete collapse. So as the judge in this case clearly decided, it would be unreasonable to judge this deal by normal standards. 'The sale process may have been imperfect, but it was still adequate under the exceptional circumstances of Lehman Week,' he said.

The important point here is that even if Barclays did end up getting a good price, it was because a) it was the only real bidder in town, and b) the alternative (i.e. not selling it) was even less palatable. As the judge said, the sale avoided 'a potentially disastrous piecemeal liquidation', thus saving thousands of jobs and propping up confidence in the system. The deal 'mitigated systemic risk', and helped to prevent 'an even greater economic calamity'. So really, Barclays was doing us all a favour...

Indeed, although it's easy to see why the creditors of the Lehman estate are up in arms that one of the bank's most valuable properties seemingly went for a song, the fact is that a sale was in the best interests of the system as a whole. And in the circumstances, it was bound to go for a fire-sale price. Why should Barclays pay out more of its shareholders' money than absolutely necessary? It's primly hailing this deal as vindication that it acted 'in good faith' - but if it came out and said that it just seized the opportunity to buy an undervalued asset in a panicky market, could anyone really blame it?

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