Lehman Bros. files for bankruptcy protection
NEW YORK -- The company filed for Chapter 11 protection in the U.S. Bankruptcy Court in the Southern District of New York.
Filing for Chapter 11 protection allows a company to restructure while creditor claims are held at bay. The company most likely chose to file under Chapter 11, rather than a Chapter 7 liquidation, so it could retain more control over the selling off of assets, said Stephen Lubben, the Daniel J. Moore professor of law at Seton Hall Law School. In a Chapter 7 filing, the court would immediately appoint a trustee to take over the case.
"I'm sure they think they could conduct a better liquidation themselves, and that's probably true," Lubben said.
The investment bank said none of its broker-dealer subsidiaries or other units would be included in the Chapter 11 filing. It says it is exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.
In its bankruptcy petition, Lehman listed Citigroup among its biggest unsecured creditors, with about $138 billion in bonds as of July 2. The Bank of New York Mellon Corp. was listed as holding about $17 billion in debt.
Lehman said as of May 31, it had assets of $639 billion and debt of $613 billion.
In a press release Monday, Lehman said, "Customers of Lehman Brothers, including customers of its wholly owned subsidiary, Neuberger Berman Holdings, LLC, may continue to trade or take other actions with respect to their accounts."
Based on its assets at the time of filing, Lehman surpassed WorldCom as the largest U.S. bankruptcy ever. Lehman had about $639 billion in assets at the time of filing, while WorldCom had about $107 billion when it filed for bankruptcy protection in 2002.
The announcement came at the end of a wild weekend, full of intense negotiations at the offices of the Federal Reserve Bank of New York, one that drove home just how difficult it will be for the nation's banks and financial institutions to return to health.
Earlier in the weekend, Lehman, one of Wall Street's oldest and most-storied investment banks that had run into trouble by investing too riskily in real estate, failed to strike a deal with a number of potential bidders.
Barclays, Britain's third-biggest bank, was the last of the potential white knights to nix a deal.
The failure to get a Lehman deal was due largely to the federal government's refusal to provide interested buyers such as Barclays with the kind of support that JPMorgan Chase received when it bought troubled investment bank Bear Stearns.
