US liquidators of Lehman Brothers begin to ask Barclays some uncomfortable questions

March 5th, 2009 by admin | Filed under Daily News, Money Management, Recession, UK Banks, World Banks.

Liquidators of the bankrupt Wall Street merchant bankers, Lehman Brothers have posed some questions to Barclays Bank Plc that may cause the bank no little discomfort. The questions, set by Bryan Marsal of Alvarez & Marsal charged with liquidating the company, are around the estimated $3.3billion that the UK bank received when it acquired part of the Lehman Brothers towards the end of last year.

The latest incident has only added to the considerable tension that has slowly built up between Alvarez & Marsal representing Lehman Brothers creditors and Barclays Plc.

The $3.3billion allegedly earmarked to meet bonuses and other liabilities incurred before the bank’s collapse represent a considerably larger sum of money than the $1.5billion that Barclays paid out when they acquired the North American division of the investment bank, after Lehmans filed for bankruptcy protection in September 2008..

Alvarez & Marsal’s decision to raise questions on Barclay’s policies is expected to further strain the relationship between the liquidators and Lehman Brother executives who were retained by Barclays Capital, the Bank’s investment banking division.

Recent communications between Bryan Marsal and Rich Ricci, Barclays Capital’s CEO stated that under the terms of the takeover agreement Barclays were due to receive more than $2 billion to meet outstanding bonuses payment an severance pay for their employees. According to information garnered by their company, Marsal now ascertains that Barclays were obliged to pay out a mere $700 million for severance pay and bonuses together.

In total, Barclays Capital is being asked to explain how this difference of $1.3 billion was arrived at, as well as to why a further $2.3 billion was transferred to the UK after the takeover was completed. Marsal and Alvarez claim that of the $4.3 billion transferred, a total of only $900 million has been used for its intended purpose.

As if by coincidence, Barclays Bank Plc, in their 2008 results announced last month showed a profit of £2.3billion, or $3.3billion on the disparity of their valuation between the assets and liabilities that they acquired from their purchase of the division of Lehman Brothers and the price that they paid for them. As part of an overall picture of Barclay’s trading picture for 2008, this gain was seen to account for around 30% of Barclays’ pre-tax profits. As far as Barclays Capital was concerned it meant the difference between a $2 billion loss and a profit of £1.3bn.

Lehman Brothers Holdings, the only division of the bank’s core business still being managed by them, through Alvarez & Marsal, announced that they were not making any allegations regarding unfair practices by Barclays Capital, but simply exercising their right to request factual information from the bank regarding possible discrepancies.