Lehman Brothers bankruptcy estate has filed a multi-billion dollar lawsuit against JPMorgan Chase, accusing its former rival of coercing Lehman to hand over an additional $8.5bn in collateral in the days leading up to its bankruptcy in September 2008, which triggered a liquidity squeeze that contributed to the failure of the firm.
It seems that JPMorgan, which acted as Lehman's clearing agent, started to make increased collateral calls on Lehman (clearly prompted by a nervousness about the firm's already precarious position), and allegedly threatened to stop clearing unless the additional collateral was posted. And The Wall Street Journal quotes from an internal Lehman e-mail sent at the time, which says (in part): 'If we don't provide the cash, they refuse to clear, we fail....'.
Lehman Brothers Holdings is now suing JPMorgan for the return of the collateral plus damages.
Here's some extracts from the complaint:
'On the brink of LBHI's bankruptcy, JPMorgan leveraged its life and death power as the brokerage firms primary clearing bank to force LBHI into a series of one-sided agreements to siphon billions of dollars in critically needed assets'. (Bloomberg)
'The effect of JPMorgan's actions - taken with the benefit of unparalleled inside knowledge - was devasting'. (The Financial Times)
'With this financial gun to Lehman's head, JPMorgan was able to extract extraordinary one-sided agreements from Lehman literally overnight. Those billions of dollars in collateral rightfully belong to the Lehman estate and its creditors'. (Bloomberg)
JPMorgan spokesperson Joe Evangelisti said, however: 'As the examiner's report makes clear, it was the ill-advised decisions of Lehman itself and its principals to take on perilous leverage and to double down on subprime mortgages and overpriced commercial real estate, and not any conduct by JPMorgan, that led to Lehman's demise and to enormous losses to its various constituents'.