) has agreed to shell out $360 million to the estate of Lehman
Brothers brokerage unit, in order to settle a collateral
disagreement, according to a Reuters report. Moreover, Citi would
forgo its claim on $75 million that was paid to the estate
contingently at the onset of the liquidation.
This comes as part of the agreement, which was reached between
Citi and the trustee liquidating Lehman Brothers' U.S. brokerage
arm. It finally brings an end to the long drawn battle between
the two over the $1 billion in collateral that Lehman put in the
bank around the time it filed for bankruptcy protection.
The settlement was filed in U.S. Bankruptcy Court in Manhattan
late last week and is subject to court approval. The dispute
began as the trustee argued that the $1 billion amount was
acquired under coercion. According to the trustee, this amount
needs to be considered a part of the common asset pool that would
be disbursed between the creditors as per the bankruptcy law.
On the other hand, Citi challenged this claim by stating that as
per the Bankruptcy Code's "safe harbor" provisions, it is
permitted to retain this $1 billion as certain financial
transactions are protected from being included in the common
asset pool. As a matter of fact, Citi claimed the deposited
amount in order to mitigate the losses it supposedly incurred
while clearing Lehman's foreign-exchange trades post the latter's
Notably, Lehman emerged out of bankruptcy in March and is
settling its issues as well as paying back to the creditors.
Therefore, for Lehman, resolving the dispute is in the best
interest of the customers and other creditors.
A long dispute and the related costs are not healthy for the
Lehman estate. The brokerage unit of Lehman is currently being
wind down. However, a significant number of Lehman customers with
hefty assets have been transitioned to
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For Citi, the settlement lessens its legal hassles and the
company remains committed to directing its resources towards
growth and efficiency.
Citi currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.