Lehman Brothers Holdings has agreed with JPMorgan Chase to settle about $7.68 billion in collateral obligations that were pending following Lehman's bankruptcy filing in 2008, court documents showed.
JPMorgan had provided various financial services to Lehman's primary broker-dealer unit prior to the latter's bankruptcy filing in September 2008.
Banks normally collect collateral from their counterparties as a way of hedging risks.
In the summer of 2008, JPMorgan had asked Lehman Brothers to execute a guaranty dated Aug. 26, 2008, and post collateral to cover that guaranty, according to the documents filed with the Bankruptcy Court of Southern District of New York.
Although the collateral posted by Lehman had a face value in the billions of dollars, it consisted of illiquid securities whose actual value was difficult to ascertain, the court papers show.
Between Sept. 9, 2008, and Sept. 12, 2008, Lehman posted an estimated $8.57 billion in cash and money market funds as additional collateral security, the papers show.
As part of the settlement, JPMorgan will reduce its remaining claims from about $7.68 billion to about $557 million after adjusting for Lehman's cash collateral.
In return, Lehman will have to make a one-time cash payment of about $557 million to JPMorgan.
As per the deal, JPMorgan will transfer the remaining illiquid collateral back to Lehman, according to the filing.
Lehman hopes the illiquid collateral — that is to be returned by JPMorgan — would rise in value over a period of time, the filings show.
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