Lehman Brothers’ European unit loses bid to recoup $485 million from bond insurer

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:AGO) 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.


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