© Reuters. FILE PHOTO: The Lehman Brothers booth on the trading floor of the New York Stock Exchange, is shown in this September 16, 2008 file photo. REUTERS/Brendan McDermid/Files
By Jonathan Stempel
NEW YORK (Reuters) – A New York judge rejected a bid by the former Lehman Brothers’ bankrupt European unit to claw back $485 million from bond insurer Assured Guaranty (NYSE:) Ltd over transactions that were canceled amid the global financial crisis.
In a decision on Wednesday, Justice Melissa Crane of a New York state court in Manhattan said Assured’s AG Financial Products unit instead deserved to recover about $20 million from Lehman Brothers International (Europe).
The case stemmed from Assured’s July 2009 termination of 28 credit default swaps on which Lehman had bought credit protection.
Lehman and Assured disagreed on how to calculate the “loss” from the terminations.
Crane said Lehman’s calculation, based on hypothetical market prices estimated by its experts, was not reasonable because the financial crisis has “so disrupted” markets that accurate prices did not exist.
“By putting all its eggs in the market price basket, LBIE has failed to show both that Assured’s valuation was unreasonable, and that its own valuation was reasonable,” the judge wrote. “Meanwhile, Assured’s valuation was reasonable and calculated in good faith.”
Crane ruled after a five-week nonjury trial held in late 2021.
Lehman had sought $1.4 billion when it sued Bermuda-based Assured in November 2011. Some claims were dismissed before trial.
Lawyers for Lehman did not immediately respond to requests for comment on Thursday. Assured’s lawyers in a statement called the decision a “significant victory.”
The Sept. 15, 2008 bankruptcy of Lehman Brothers Holdings Inc – once Wall Street’s fourth-largest investment bank – was one of the major triggers of that year’s financial crisis. Lehman’s bankruptcy remains by far the largest in U.S. history.
The case is Lehman Brothers International (Europe) v. AG Financial Products Inc, New York State Supreme Court, New York County, No. 653284/2011.
Lehman Brothers’ European unit has failed to recoup $485 million from bond insurer MBIA UK, in a court ruling that closes a chapter in the collapse of Lehman Bros. more than a decade ago.
The decision came about following legal proceedings against bond insurer MBIA United Kingdom Limited by Lehman Brothers International (Europe), the London-based financial services arm of the now-defunct investment bank. According to the London court, the case against MBIA UK was “unarguably complex”.
Lehman Brothers International (Europe) had sought to recover $485 million they had paid to MBIA in early 2008 in exchange for authorization to issue certain bonds. Lehman claimed it was misled regarding the “legal and regulatory issues” of the agreement with MBIA, which was intended to help secure certain European bond issues.
The court ruled that contrary to Lehman Brothers’ claims, the bank had not been given incorrect information by MBIA and therefore was ineligible to seek a legal recourse. The court further noted that it would have been impossible for MBIA to have made an accurate estimation of the future regulatory environment on the day the agreement was negotiated.
While the court has ruled against Lehman’s reclaim of $485 million, it might not be the last statement in the decade-long aftermath of the Lehman Brothers’ collapse. Last year, a court of appeals in the United States ruled that the company was still liable for up to $1.4 billion in unpaid taxes, a claim the IRS has since tried to recover. It remains to be seen if the next chapter in this ongoing saga will be in the banks’ favor.