In a new twist on the post financial crisis banking sector, JP Morgan Chase & Co. (NYSE: JPM) is suing Lehman Brothers Holdings Inc. The lawsuit filed claims the failed investment bank engaged in “collusion and deception” when it persuaded the bank to lend more than $70 billion in the days after it filed for Chapter 11 bankruptcy protection in 2008.
In the lawsuit filed late Wednesday with the U.S. Bankruptcy Court in Manhattan, J.P. Morgan said Lehman and Barclays PLC (NYSE: BCS), the buyer of much of the failed bank’s assets, misled J.P. Morgan into believing its loans would be paid in full as part of that sale. Instead, Barclays bought the Lehman assets it wanted and left J.P. Morgan with loans secured by Lehman’s “most toxic securities,” according to the lawsuit.
Prior to Lehman’s collapse, J.P. Morgan served as Lehman’s main clearing bank, meaning it acted as a middleman between Lehman and its lenders and investors. J.P. Morgan said it could have “walked away” from Lehman on the day of the bankruptcy filing and suffered little loss. But instead, at the urging of the Federal Reserve Bank of New York, J.P. Morgan lent Lehman billions so that it could repurchase its portfolio from overnight investors. Without those loans, Lehman would have been unable to sell its business to Barclays, and its securities would have been swiftly liquidated.
The lawsuit is in response to a lawsuit Lehman filed in May, alleging that J.P. Morgan illegally siphoned billions of dollars from Lehman as it collapsed. That lawsuit alleges that J.P. Morgan Chief Executive James Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened. J.P. Morgan made Lehman turn over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman’s collapse, the suit said.
Clearly, there is no love lost between these two firms – we continue to sift through the ashes of a once great firm, and it is highly likely dozens of more lawsuits will be filed in the coming years associated with these events as well. The shareholder values were eliminated swiftly, and this has lead to continued anger and lack of trust.
