In a 325-page filing on Friday with the U.S. bankruptcy court in Manhattan, the British bank also rejected efforts by the Lehman estate to renegotiate the purchase on the grounds that the terms for Barclays were supposedly too good.
Barclays said the terms were properly disclosed and were fairly considered in court. It also said it was impossible to expect any windfall given how hard it was to value Lehman's assets, and that havoc could have resulted absent a purchase.
If Barclays lost money on this transaction, it would have been the end of the U.S. capital markets, said Barry Ridings, a Lehman financial adviser and senior restructuring adviser at Lazard Ltd , in a deposition quoted in Friday's filing.
If Barclays had expended this money and the capital markets continued to fall, there was a chance Barclays would then subsequently fail, which would have meant that Goldman (Sachs) , Morgan Stanley , the list goes on and on of firms that may fail, he went on. It was that bad.
Lehman's chief executive is restructuring specialist Bryan Marsal of Alvarez & Marsal. In a statement, the company maintained that Barclays knew it was buying important assets for an unreasonably cheap price.
NOT ENOUGH DISCLOSURE, LEHMAN SAYS
The deal was described to the Lehman boards and to the court as an equivalent exchange of value, with no embedded gain for Barclays, it said. Lawyers and the court were not informed of an upfront discount for Barclays. Because the court was never told, it never approved such a gain.
The court-appointed trustee for the Lehman brokerage also rejected Barclay's claims, saying they were based on strained interpretations of the sale and would create a windfall.
The trustee believes the recovery of the money from Barclays would be important to paying off thousands of remaining customer claims, said William Maguire, a partner at Hughes Hubbard & Reed LLP who represents the trustee.
Barclays cemented its roughly $1.54 billion purchase of Lehman's U.S. brokerage and some real estate just days after the company's September 15, 2008 bankruptcy. It remains the largest bankruptcy in U.S. history.
Barclays President Bob Diamond said last month the assets the bank acquired are performing better than expected.
Lehman's collapse came just hours after efforts to sell the entire company fell through, and triggered a financial crisis from which economies worldwide are struggling to recover.
IS WINDFALL REAL, OR FICTION?
The current debate on whether Barclays extracted a sweetheart deal turns in part on its September 18, 2008 agreement to advance $45 billion of cash to Lehman in exchange for $49.7 billion of collateral.
Barclays said it negotiated in good faith under distressed circumstances, and at the insistence of the Federal Reserve Bank of New York.
Repeating that Lehman's fast-deteriorating value was akin to a melting ice cube, it said that Lehman's own financial advisers did not see problems with the takeover terms, and recognized the consequences if the transaction did not occur.
The British bank said the supposed $5 billion windfall is a fiction, and that in fact Lehman and the trustee owe it billions. It added that accepting Lehman's claims would violate the due process and takings clauses of the U.S. Constitution.
Lehman's trustee has identified about $6.7 billion of cash and securities that he said was wrongfully transferred to Barclays.
Barclays is changing the deal, Maguire said. They are saying they were basically entitled to a blank check.
A hearing on Barclays request is set for March 25. Objections are due by March 4.
The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.
(Reporting by Emily Chasan in Las Vegas and Jonathan Stempel in New York; Editing by Steve Orlofsky, Leslie Gevirtz and Richard Chang)