J.P. Morgan Chase & Co. (NYSE:JPM) has agreed to pay the remnants of Lehman Brothers Holdings Inc. $1.42 billion in cash to settle most of the failed investment bank’s lawsuit over claims that J.P. Morgan illegally siphoned billions of dollars from Lehman before its collapse.
The deal, unveiled Monday night in a filing in U.S. Bankruptcy Court in New York, resolves the bulk of Lehman’s $8.6 billion lawsuit against J.P. Morgan and the bank’s counterclaims against Lehman. It also puts to rest Lehman’s challenges over J.P. Morgan’s closeout of thousands of derivatives contracts following the investment bank’s collapse.
Although the settlement doesn’t resolve all the claims between Lehman and J.P. Morgan, it ends a “significant portion” of their disputes, court papers said, and allows the postbankruptcy Lehman estate to make another $1.5 billion distribution to the investment bank’s creditors.
In the turbulent days after Lehman filed for bankruptcy, it sold its broker-dealer business to Barclays PLC. When the dust settled, J.P. Morgan said some $25 billion it had advanced to Lehman’s broker-dealer was left unpaid and it was stuck with the illiquid securities that Barclays didn’t want. To close the hole, J.P. Morgan applied $8.6 billion of collateral that Lehman’s holding company had pledged to the bank in the days before its collapse.
Lehman, once the nation’s fourth-largest investment bank, collapsed into the largest bankruptcy ever in September 2008. The filing sent markets into turmoil and helped trigger a global financial crisis.
The legal fight with J.P. Morgan is one of a few large remaining orders of business for Lehman, which officially emerged from chapter 11 protection in March 2012. Since then, the company, which is being overseen by a new board of directors, has paid back tens of billions of dollars to creditors while searching for more funds through lawsuits and settlements. The holding company is winding down and selling off its remaining holdings, a process that is expected to continue for several years.