Lehman files Chapter 11 bankruptcy, trying to sell assets

NEW YORK -- Lehman Bros. filed for bankruptcy protection Monday, becoming the second major Wall Street firm to disintegrate under the weight of the deepening credit crunch.

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 of the sale of assets, said Stephen Lubben, a professor 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," he said.

Lehman said none of its broker-dealer subsidiaries or other units would be included in the filing. It says it's exploring the sale of its broker-dealer operations and is in "advanced discussions" to sell its investment management unit.

Based on its assets at the time of filing, Lehman surpassed WorldCom as the largest U.S. bankruptcy. Lehman had about $639 billion in assets at the time of filing, while WorldCom had about $107 billion when it filed for Chapter 11 in 2002.

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 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.

The filing was made so hastily that the company had not filed motions Monday that are typically made on the first day, such as asking court permission to pay employees.

Many Lehman employees seen entering its headquarters in Midtown Manhattan tucked their chins down to avoid talking to the media and others who lined up behind metal barriers in front of the building. Some carried empty shopping bags, tote bags or gym bags into the office.

Lehman Bros. International Europe's administrators said they don't know if some employees will be paid at the end of this week after its U.S. parent filed for bankruptcy.

"We still don't know what the position is, or whether or not there are funds to be paid," said PricewaterhouseCoopers partner Tony Lomas at a press briefing in London on Monday. "The outcome for the majority of staff has yet to be determined," Lomas said. A "couple dozen" U.K. Lehman workers lost their jobs today, the administrators said.

Lehman's membership on the IntercontinentalExchange, which includes access to the European Climate Exchange, the world's largest emissions trading exchange, was suspended, an ICE spokesman said. This effectively disallows Lehman from closing positions on its trading books.