Barclays faces $5bn lawsuit from Lehman Brothers

Lehman Brothers Holdings is suing Barclays Capital in an attempt to recover $5 billion worth of assets it claims were improperly transferred to the British bank.

Last year, Barclays bought out Lehman Brothers' broker-dealer business for $1.75 billion in the week after it had filed for bankruptcy protection.

Barclays has since recorded a net gain of $4.2 billion on the assets it acquired from Lehman, figures that may have helped it secure the Wealth Management House of the Year award from Asia Risk magazine earlier this month.

The full details of the deal, which were not disclosed to the public, are said by Lehman attorneys to have included a repurchase agreement of up to $7 billion in excess collateral and around $5 billion in assets.

Earlier this year, Lehman said that Barclays Capital had made a windfall profit on the deal of $8.2 billion because of a secret $5 billion discount off the book value of securities transferred to it.

"The windfall to Barclays was not disclosed to the court, the Lehman boards or Lehman's lawyers so as to allow the transfer to Barclays of billions of dollars in excess assets, without consideration, in a manner designed to avoid judicial, corporate and creditor oversight," said Lehman attorneys yesterday, in proceedings at a US bankruptcy court in Manhattan.

They went on to allege that the sale was "secretly structured from the outset to give Barclays an immediate and enormous windfall profit".

It is also claimed that some executives at Lehman knew of the conditions of the sale but did not pass the information on to the company's board or attorneys.

Those executives are accused of negotiating the sale with an eye on what personal pay and bonus packages they would receive working for Barclays if and when the sale went through.

Lehman is asking for the profit to be returned and punitive damages to be awarded.

By Claire Archer