Lehman Brothers Holdings Inc. will pay JPMorgan Chase & Co. $557 million in cash and let it keep $7.7 billion in collateral in a deal to settle some of the bank's claims in Lehman's bankruptcy case.
JPMorgan Chase, the second-largest U.S. bank by assets, will transfer back to Lehman Brothers "illiquid securities" with a face value of $9 billion that it is also holding as collateral, according to a court filing Wednesday in New York.
The settlement is subject to court approval. Lehman, which filed the biggest bankruptcy in U.S. history in 2008, said in the filing it is not sure of the actual market value of the securities being returned.
"The settlement allows Lehman to more efficiently manage billions of dollars worth of its illiquid assets, thereby maximizing the return on those assets for the benefit of its creditors," Lehman representative Kimberly Macleod said in an e-mailed statement. "The parties to the settlement have reserved all rights with respect to claims they have against each other."
David Wells, a JPMorgan Chase spokesman in London, declined to comment.
Lehman's brokerage used JPMorgan Chase as its primary clearing bank and deposited billions of dollars in collateral, including the illiquid securities, with the New York bank.
An examiner probing Lehman's failure has said he aims to make public a report filed under seal on whether banks such as JPMorgan may have contributed to the insolvency of the fourth-largest investment bank.
JPMorgan Chase, in the summer of 2008, began requiring billions of dollars of collateral from Lehman to guarantee its borrowings, according to the filing. In addition to the illiquid securities, the bank took cash and money market funds valued at $8.57 billion from Sept. 9-12, Lehman said.
After Lehman's Sept. 15, 2008, bankruptcy, JPMorgan Chase filed proofs of claim of more than $29 billion, reducing the amount over time by using collateral previously deposited by Lehman, according to the filing. The remaining balance will be paid by the current deal, Lehman said.