Lehman bank units set for sale or closure

City A.M. Reporter
LEHMAN Brothers Holdings, the bankrupt US investment bank, needs at least $550m (£357.4m) to keep its two bank units going as it prepares to sell them or shut them down in 18 months, court documents show.

Lehman asked a Federal bankruptcy court judge in Manhattan yesterday to approve the capital commitments and sale plans, which are part of Lehman’s blueprint for unwinding its operations after filing for bankruptcy protection nearly two years ago.

The sale of the bank units could bring in $1bn to $2bn, Lehman has said, and are among the largest single assets Lehman has left to sell.

In the filing with a US bankruptcy court, Lehman said it was faced with a choice of either allowing the units to fail or injecting capital into their balance sheets to recover significant value for its creditors.

It asked the court to approve settlements with the banks and wants to be allowed to sell Aurora Bank FSB, formerly known as Lehman Brothers Bank, within 18 months or shut it down if unable to find a buyer.

Aurora has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit.

It also asked the court to approve a settlement agreement that would allow it to sell or dissolve its other banking unit, Woodlands Commercial Bank.

It faces similar restrictions from regulators due to capital requirements.

Failure to resolve the capital issues at the banks would result in estimated losses of between $1.2bn and $3.6bn, Lehman said.

Lehman said that based on 30 June 2010, regulatory reports, the values of its equity interest in Aurora and Woodlands were at $677.6m and $741.6m, respectively, for a combined value of $1.42bn.

Lehman said it would transfer $477m in cash to Aurora and would need to put $75m into Woodlands.

It noted that since February 2009, Lehman has taken steps to support the banks’ capital levels, including making a $200m cash contribution to Woodlands.

It said there was an additional $72m capital commitment that has not yet been drawn upon.