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Reincarnated Lehman Brothers goes on attack to reclaim prominence

Once the nation’s fourth-largest investment bank, Lehman Brothers filed the largest bankruptcy in U.S. history in 2008.

Getty Images (2008)

Once the nation’s fourth-largest investment bank, Lehman Brothers filed the largest bankruptcy in U.S. history in 2008.

NEW YORK — Lehman Brothers is a business again, two years after declaring the biggest bankruptcy in U.S. history, with billions of dollars in cash, 500 employees, real estate and investments in other bankruptcies.

The defunct New York investment bank, being run by Bryan Marsal, has almost $20 billion in cash and a monthly payroll of up to $45 million for managers and advisers. Hard-to-sell investments are being managed by 400 employees, and the firm is spending tens of millions of dollars on litigation set to stretch to at least 2012.

Lehman's strategy is unusual for a bankrupt company that's liquidating. Marsal, 59, is betting that he'll raise twice as much by holding Lehman's worst-performing investments as he would by conducting a fire sale.

"The liquidating estate is acting like an ongoing investment concern," said Lawrence Larose, a lawyer with Winston & Strawn's financial restructuring practice in New York. "It's trying to slowly extricate itself from these billions of dollars of investments around the world."

Marsal is not only pouring cash into distressed assets he inherited. He spent $1.4 billion to buy a bankrupt affiliate's loans on a bet he could sell them at a profit.

In a filing Tuesday, Lehman is seeking to recover more than $3 billion from banks, insurers and other financial services companies that it claims it lost when its bankruptcy filing in 2008 caused its priority payment status to be modified.

Marsal plans to slash creditors' claims, initially $1 trillion, to $260 billion by disallowing duplicate and unsubstantiated demands.

He intends to use lawsuits to recover money for creditors. From Barclays, Lehman wants as much as $11 billion because of an alleged "windfall" the British bank made on the purchase of Lehman's defunct brokerage.

Lehman accused JPMorgan Chase & Co. of helping cause its collapse by demanding $8.6 billion in collateral as credit markets contracted in 2008; it put the damage at billions of dollars.

Both banks denied wrongdoing and are fighting back. The Barclays trial in bankruptcy court will continue at least through September. JPMorgan's is set for 2012.

"If Lehman is only able to extract a modest settlement from Barclays or JPMorgan, creditor fears of getting back dimes on the dollar will become reality again," said Mark Williams, a lecturer at Boston University who wrote a book on Lehman, Uncontrolled Risk.

Lehman, once the fourth-largest investment bank, with assets of $639 billion, foundered on Sept. 15, 2008, because of risky real estate bets and too much debt, which it tried to hide from investors, according to a report by examiner Anton Valukas.

Marsal has been Lehman's chief executive since 2008. He intends to raise $40 billion to $50 billion by selling Lehman assets in the next five years for unsecured creditors, he said. Selling soon after the 2008 financial crisis might have brought $20 billion or less, he said.

Reincarnated Lehman Brothers goes on attack to reclaim prominence 09/15/10 [Last modified: Wednesday, September 15, 2010 9:07pm]
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