Lehman’s London arm to close, 17 years and £28 billion later

Lehman Brothers’s London unit can finally close, a little over 17 years after the US lender collapsed in one of the largest bankruptcies ever.

A London judge ruled Wednesday that the administration of Lehman Brothers International Europe could be concluded, with the company having satisfied all of its creditors. The administration of the firm began after the collapse of its US parent on Sept. 15, 2008, the harbinger of the global financial crisis.

The failure was unexpectedly lucrative, with insolvency practitioners at PricewaterhouseCoopers able to recover almost £28 billion ($37.5 billion) from the international unit - a “remarkably successful” outcome, according to Judge Robert Hildyard.

“The Lehman’s case is so unusual that is unlikely to ever be repeated,” Hildyard said at Wednesday’s hearing. “It’s a seminal moment.”

Picking clean Lehman’s corpse has kept a legion of accountants, lawyers and hedge funds busy for the best part of two decades. PwC has been paid £1 billion for its work on LBIE, with another £489 million paid out in legal costs since 2008, according to the latest progress report from the administrators.

Far more money has been recovered than initially expected. In this case most creditors of LBIE, pronounced “Libby,” were paid in full with statutory interest, which is 8% under UK rules.

Administrators are appointed to insolvent companies in the UK to try and rescue the businesses, or wring enough from their assets to satisfy their debts. A few of LBIE’S subsidiaries will likely continue in administration for a brief period of time, before also being liquidated.

“It’s quite a unique situation” for a company in administration to have surplus assets, Ryan Perkins, a lawyer for LBIE, told the court. “The administrators have nothing left to do.”

A number of opportunistic investors bought LBIE’s debts for big discounts after its collapse, including Elliott Management, AB Carval Investors LP and Davidson Kempner Capital.

The abundance of cash that was recovered by Lehman’s administrators saw many of these creditors file suits against each other to be repaid first in a series of lawsuits referred to as the “Waterfall” cases. As recently as 2023, Deutsche Bank AG and Lehman’s US parent were in court fighting over some of the lowest ranking obligations.

The administrators also brought cases in order to try and boost the assets they could recover. Two and a half years ago, LBIE lost a judgment in New York over a case in which it was claiming insurer Assured Guaranty owed it $500 million.