Lehman brokerage trustee eyes $18.3 billion payout

NEW YORK ― The trustee liquidating Lehman Brothers Holdings Inc’s. brokerage unit asked a bankruptcy judge for permission to set aside $18.3 billion of assets to be returned to customers beginning early next year.

That payout would represent more than three-fourths of the $23.7 billion of assets that James Giddens, the trustee for the Lehman Brothers Inc unit, said he has under his control.

Of the $23.7 billion, $12.7 billion are securities and $11 billion is cash. Lehman was the fourth-largest U.S. investment bank prior to its Sept. 15, 2008, bankruptcy, the largest Chapter 11 filing in U.S. history.

“The great bulk of the assets that will be available for distribution … are now in hand,” Giddens said in a late Thursday filing with the U.S. Bankruptcy Court in Manhattan. “The trustee would like to be in a position to proceed with interim distributions to customers in early 2012.”

Soon after Lehman’s bankruptcy, Giddens distributed $92.3 billion to benefit customers holding 110,000 accounts. Many accounts were absorbed by Barclays Plc and asset manager Neuberger Berman.

Giddens is also liquidating the broker-dealer unit of MF Global Holdings Ltd, a futures brokerage once run by former New Jersey governor and Goldman Sachs chief Jon Corzine. Customer distributions in that case are a small fraction of those in Lehman’s bankruptcy.

According to Thursday’s filing, Giddens plans to keep $3.07 billion of assets in reserve pending the outcome of litigation with Barclays. The British bank bought much of Lehman’s investment banking business.

Giddens’ request requires approval by U.S. Bankruptcy Judge James Peck. A hearing is scheduled for Jan. 25, 2012.

Peck is also expected at a Dec. 6 hearing to approve Lehman’s reorganization plan. The plan would return about $65 billion to creditors starting early next year. Lehman this week said that plan has overwhelming creditor support.

Borders loses Najafi Companies deal, may face liquidation

NEW YORK ― A judge on Thursday approved a plan that would liquidate Borders Group Inc. after the bankrupt bookseller’s tentative deal with buyout firm Najafi Companies fell apart.

The new plan would sell the second-largest book retailer to liquidators led by Hilco Merchant Resources unless another bidder offers more money to keep the business operating.

If no bidder steps forward, the Hilco group will win the right to liquidate Borders’ roughly 400 remaining stores, putting about 11,000 employees out of work, according to a Borders spokeswoman.

Borders reached a tentative $435 million agreement with Najafi as an opening bidder before a court-supervised auction scheduled for Tuesday, but the plan fell apart late Wednesday after creditors objected.

Because the company’s bankruptcy loan requires it to have a minimum, or “stalking horse” bidder in place before an auction, Borders was forced to fall back on the liquidation plan as its opening bid.

Borders filed for bankruptcy in February after struggling for years to compete with Amazon.com Inc. and Barnes & Noble as bookselling shifted online. Online sales account for a tiny fraction of Borders sales.

An auction remains scheduled for Tuesday, and a going-concern bidder could still emerge, Borders attorney Andrew Glenn said at a hearing in U.S. Bankruptcy Court in Manhattan.

Glenn said he hopes Najafi will submit a revised bid, and indicated that the investor has expressed interest in doing so, though exactly what role it could play remains unclear.

Najafi, which owns the Book-of-the-Month club, would have paid $215 million cash and assumed $220 million in liabilities to make Borders a subsidiary of its Direct Brands unit, a direct-to-consumer distributor of DVDs, CDs and books. But the deal also would have allowed the private equity firm to liquidate Borders’ brick-and-mortar operations, raising a vehement objection from the creditors’ committee.

Banks chafe at pay clawbacks in liquidation proposed plan

WASHINGTON ― Banks and other large financial companies that could be seized and liquidated by the government are balking at a proposed plan they argue gives regulators too much power to snatch back executives’ pay if their institutions fail.

The plan is part of a broader proposal first issued earlier this year. A final rule is expected to be adopted today by the Federal Deposit Insurance Corp.

The 2010 Dodd-Frank financial oversight law gives regulators the ability to recoup up to two years of pay from executives considered substantially responsible for a company’s failure as part of regulators’ power to seize large financial firms on the brink of failure.

Banking groups are complaining that the regulators are going too far in interpreting who is “substantially responsible” and are not setting clear standards for when executive pay should be recouped.

“Vague and arguably unfair provisions would create powerful incentives for senior executives and directors with the best options to head for the exits at the first sign of trouble, lest a substantial portion of their compensation be at risk,” top banking groups including the American Bankers Association, The Clearing House and the Financial Services Roundtable wrote regulators in May.

The groups argue that an institution’s failure could be due to market conditions outside of a company’s control and that should be reflected more in the rule.

The clawback provision was inserted into the law in response to public anger that banking and Wall Street executives at firms such as American International Group were being paid handsomely despite mistakes that helped bring about the 2007-2009 financial crisis.

There is some sympathy among regulators for the banks’ complaints.

Acting Comptroller of the Currency John Walsh and acting Office of Thrift Supervision Director John Bowman, both FDIC board members, expressed concern when the rule was first released that the clawback provision may be too broad.

Walsh said he was concerned the provision was tied too tightly to job titles as opposed to what actions specific executives took.

But regulators and politicians, for the most part, have had little sympathy for complaints about executive pay restrictions at a time when unemployment is high and the economy is still weak. The final rule is not expected to be much different from the proposal released in March.