Barclays faces Lehman legal action

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Barclays could be forced to pay more than the $1.75bn (£1.1bn) it originally agreed for the North American business of the bankrupt investment bank Lehman Brothers, if the company's liquidator succeeds in a legal action launched in a New York court.

The original deal, rushed through during the financial panic of last September, just 48 hours after Lehman filed for bankruptcy, handed Barclays an unfair "windfall" profit because it was based on an overestimate of the liabilities that the UK bank was taking on, the liquidator claims.

Because it agreed to take over bonus payments to staff and other contractual costs, estimated at the time at more than $4bn, Barclays was able to negotiate a price for the core Lehman broker-dealer business of just $250m. It paid a further $1.5bn for properties in New York and New Jersey.

The deal cemented Barclays' position as a powerhouse in global investment banking, and rescued several thousand Lehman bankers from the threat of unemployment. And by the end of December, Barclays' financial results were showing a £2.3bn gain on the value of the assets it had bought.

Barclays said at the time that this gain was made possible only because it had put so much effort into re-establishing client relationships and restoring stability to a business that had been collapsing. But Lehman's liquidator says it suggests that Barclays may never have paid the liabilities on which its purchase price was calculated. It has hired Jones Day, the giant legal firm, to pursue Barclays for information on what it says are "discrepancies". Barclays has told it that it has no obligation to help it with a legal fishing expedition. A judge is expected to hear arguments next month.