Lehman Brothers lost its bid to recapture $11 billion worth of assets from Barclays Capital, as a U.S. bankruptcy judge disagreed with Lehman's claim that Barclays had improperly reaped a "windfall" by secretly negotiating a discount for Lehman’s North American capital markets business.  Barclays had argued that it was the only bidder for the Lehman business, and the failure to quickly gain approval of its offer would have led to the loss of thousands of jobs.

Note:  Barclays was the sole bidder for defunct Lehman’s brokerage in the 2008 credit crisis, taking 10,000 employees and giving 72,000 customers access to $40 billion in frozen assets. 

In his 103-page decision, by Judge James Peck wrote that the frenzied circumstances of Lehman’s bankruptcy filing and the urgent need to sell the failed firm’s assets overrode flaws in the sales process. 

"The court was not deceived in a manner that should now be permitted to upset the integrity of the sale order.  The sale process may have been imperfect, but it was still adequate under the exceptional circumstances of Lehman Week."  He added that the deal benefited all parties and helped to save everyone from "an even greater economic calamity."

    Barclays May Face a Big Write-Down.   U.K.'s 3rd-biggest bank was awarded $800mn of the $3bn it wanted, and may get a similar amount later, according to Judge Peck's ruling.  At the same time, however, the judge denied Barclays’s claim to margin and other assets, some of which it previously recorded as part of the $3.7bn gain.  Accordingly, Barclays Capital may have to write down part of that $3.7bn gain. 

Judge Peck wasn’t specific in his ruling about some amounts Barclays won or must forfeit - and, he invited lawyers for Lehman, its creditors, the trustee and Barclays to propose orders spelling out details within 10 days.  However, the trustee who's liquidating the Lehman Brothers estate proclaimed that he had won $4.8bn of assets away from Barclays.  If that's true, Barclays is likely to file an appeal.  

The case is:  In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York.   [NYT Dealbook, 2/22;  Bloomberg, 2/23]