Barclays scored a significant legal victory in the US last night in its long tussle over billions of dollars of disputed assets from its acquisition of Lehman Brothers in 2008.
A federal court said the British bank could, in fact, keep hold of $3.5bn in cash that was supporting Lehman Brothers derivatives positions, rather than turn the money over to the Lehman bankruptcy trustee, as a lower court had ruled last year. Barclays will also not have to pay $280m in interest.
The two sides have been arguing about just which assets were meant to be included in the acquisition, when Barclays bought most of Lehman Brothers from the bankruptcy trustee in the week after the investment bank collapsed. Because details of the deal were worked out on the hoof in the worst week of the credit crisis, some documents were ambiguous or contradictory, the US District Court in Manhattan was told.
However, the lower court was wrong to assert there was doubt about the billions held in margin accounts. The paperwork on that was "consistent and unambiguous: the margin assets were sold to Barclays", Judge Katherine Forrest said in her ruling.
"This is not a situation where one believes he or she is buying a milking cow but gets a bull," she added.
Barclays said it was too early to quantify the effect of the ruling on its earnings. It has accounted for some of the disputed assets but not all, and there is likely to be a further round of court appeals. The bankruptcy trustee, James Giddens, is fighting to recoup as much money as possible for Lehman creditors. The bank collapsed in September 2008, triggering panic that ended only when the US government stepped in with financial guarantees to underpin the banking system.