Barclays faces £1.4bn writedown after US ruling on Lehman deal

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Barclays could be forced to take a writedown running into hundreds of millions of pounds as a result of a court ruling over its 2008 acquisition of Lehman Brothers' US business.

A New York bankruptcy judge rejected claims that Barclays had cheated Lehman's creditors out of billions of dollars, and will not have to pay up to $11bn (£6.8bn) extra for the deal that transformed it overnight into a Wall Street powerhouse.

But the details of the ruling also included a determination on which out of more than $7bn of disputed assets should be claimed by each side. Because Barclays has already recognised £2bn of £2.6bn in assets it says it has yet to receive from the Lehman bankruptcy estate, it could have to write down some of that figure, resulting in a one-time charge.

Edward Firth, analyst at Macquarie, said there was still no clarity on the effects of the ruling, but "a worst case" scenario would now appear to suggest that around £2bn of these assets will not be received. Barclays has already assumed that £0.6bn will not arrive, implying a further provision required of around £1.4bn.

Barclays lawyers are studying the judgment, and a court hearing in the next 10 days could provide further details. The bank could also consider an appeal. While other firms were fighting for their survival, Barclays bought the Lehman Brothers US broker-dealer business and many of its trading assets out of bankruptcy in September 2008.

The trustee overseeing what remains of the bankrupt Lehman Brothers estate claimed that Barclays negotiated a secret discount on the price of many assets and misled the bankruptcy judge who approved the acquisition.

During the trial, Barclays' then-chief executive, John Varley, and his successor, Bob Diamond, took the stand to recount the confusion of what came to be known as "Lehman week" – the days after Lehman's catastrophic bankruptcy, when global markets came close to collapse.

That judge, James Peck, ruled late on Tuesday that, although the process for the sale of some assets to Barclays was flawed, it amounted to "an honest effort to make the best of a very bad situation" and he would have approved the deal even if he had seen all the paperwork. Both sides agreed at the time on the prices for assets being transferred to Barclays, he said. The British bank argued that it needed to get a discount on the assets because of the risks it was taking during a period of unprecedented market turmoil.

In his new ruling, Judge Peck said the sale of Lehman's US broker-dealer operations and many of its trading positions "was regarded by many as an admirable, even heroic, achievement... the perception during Lehman week was that the transaction with Barclays benefited all interested parties, mitigated systemic risk and helped to save every one of us from an even greater economic calamity.

"Nothing in the voluminous record presented to the court in these protracted proceedings has done anything to change that undeniably correct perception."

Ian Gordon, analyst at Exane BNP Paribas, said: "Barclays could have attempted to settle the litigation. The fact that it chose not to evidences both a proper desire to uphold the principles of contract law, and reject short-term expediency."