Oh, this could get ugly. The Wall Street Journal reports that Lehman’s unsecured creditors are calling on the bankruptcy court to examine why the investment bank ran out of funds. The suit argues that JP Morgan abused its role as clearing bank, retaining $17 billion of excess collateral which Lehman could have used to stave off its collapse.
From the Wall Street Journal:
Unsecured creditors of Lehman Brothers Holdings Inc. asked a court overseeing the securities firm’s bankruptcy proceedings for permission to investigate how Lehman ran out of money.
The creditors’ group alleges that J.P. Morgan Chase & Co., which acted as a financial middleman between Lehman and other lenders, helped spark a “liquidity crisis” at Lehman before the firm filed for Chapter 11 bankruptcy proceedings earlier this month…
According to the court filing, about $17 billion in Lehman cash and securities were being held at J.P. Morgan as collateral. In serving as a middleman, or so-called clearing bank, J.P. Morgan operates the bank plumbing that connects firms such as Lehman to third-party lenders. In that role, J.P. Morgan held collateral to ensure the lenders’ loans to Lehman can be repaid. In its claim, the creditors group alleges that J.P. Morgan “withheld $17 billion in excess assets” from Lehman Brothers “in the days just prior to the bankruptcy filing.”
In the claim, the creditors say that J.P. Morgan’s refusal to make the assets available to Lehman may then have contributed to Lehman’s cash strain.
The creditors group asked the court to authorize the collection of information from J.P. Morgan, as well as the deposition of a J.P. Morgan official.