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Respite for JPMorgan: $8.6B Lehman Creditor Suit Dismissed

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Amid a series of post crisis regulatory issues and subsequent settlements, JPMorgan Chase & Co.JPM can now count one lawsuit less after a federal judge ruled in its favour and ended the five-year long dispute. The claim was related to an $8.6 billion court case filed by creditors of Lehman Brothers Holdings Inc. against JPMorgan, alleging misuse of power by the latter.

The Back Story

The lawsuit accused JPMorgan of wringing out an $8.6 billion "slush fund" from Lehman Brothers through illegal collateral demands in the final days before the failure of Lehman Brothers. In short, creditors of Lehman Brothers blamed JPMorgan's actions for the collapse of the investment bank.

According to the plaintiffs, the bank exploited its leverage as Lehman Brothers' primary clearing bank and compelled the investment bank to shell out additional collateral ahead of other creditors before its downfall, thus resulting in the historic 2008 crisis.

Latest Update

Judge Richard Sullivan of the U.S. District Court in New York rejected the claims and rebuffed Lehman's creditors' "fundamental premise" that J.P. Morgan "was obligated to extend credit to Lehman under its credit agreement." However, he permitted six claims to seek trial having no basis to reject them.

According to the Judge, JPMorgan had no contractual commitment to offer credit, which may have provided support to Lehman Brothers. Moreover, he stated that the bank had every right to demand collateral in order to secure obligations.

"The parties were sophisticated players, represented by counsel, and practiced in executing contracts of this type," Sullivan wrote in his 31-page decision. "The court will not now rewrite the parties' contractual text -- with express or implied terms -- to provide Lehman with language more beneficial than what it negotiated."

JPMorgan's CDS Settlement

JPMorgan is said to disburse around $595 million out of the $1.86 billion settlement to resolve a lawsuit against 12 banking giants for artificially inflating prices and restricting competition in the credit default swaps (CDS) market, which constituted a violation of the U.S. antitrust law.

Among the dozen banks, Morgan Stanley MS , Barclays PLC BCS and The Goldman Sachs Group, Inc. GS are expected to shell out about $230 million, $175 million and $164 million, respectively, as reported by Bloomberg. Further, Credit Suisse Group AG, Deutsche Bank AG and Bank of America Corporation are anticipated to pay around $160 million, $120 million and $90 million, respectively.

Also, BNP Paribas SA, UBS Group AG, Citigroup Inc., The Royal Bank of Scotland Group plc and HSBC Holdings plc are expected to shell out less than $100 million each.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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