By Joseph Checkler 
 

The handful of Lehman Brothers Holdings Inc. brokerage customers that weren't paid back in the aftermath of the investment bank's 2008 collapse moved a step closer Tuesday to getting their money back, the trustee unwinding the brokerage said.

In filings with the U.S. Bankruptcy Court in Manhattan, trustee James W. Giddens unveiled details of the billions of dollars of intercompany settlements with the brokerage's holding company and U.K. unit that finally free up the money to pay back those 400 or so customers, mostly institutions and prime brokerage customers of the U.S. brokerage.

Mr. Giddens previously had said he thought those customers would get all their money back. But until the details of the settlements had been finalized, he couldn't be sure.

The 110,000 individual retail customers of Lehman's brokerage received all their money back, $92.3 billion in all, soon after the bank's September 2008 collapse. But the nonretail customers have had to wait as Mr. Giddens sorted out billions of dollars of claims from both the Lehman parent company and the U.K. arm.

"If judicially approved and implemented, securities customers should receive full satisfaction of their claims and distributions from the general estate will be facilitated," Mr. Giddens said Tuesday.

Mr. Giddens also released Tuesday more details of that landmark settlement agreed to in principle last October with Lehman's U.K. unit, Lehman Brothers International Europe. That pact settled $38 billion in disputed claims the two sides had against each other, but represented perhaps the biggest hurdle for Mr. Giddens as he tried to set up distributions.

Under the deal, Lehman Brothers' holding company will cut its customer claim against the brokerage to just $2.3 billion from $19.9 billion and reduce its "general" claim to $14 billion from $22 billion.

That $14 billion claim will be paid in accordance with Lehman's historic creditor payback plan approved by a judge late in 2011. Creditors of the holding company are getting more than 20 cents on the dollar for their claims while those with claims against affiliates in many cases will receive even more.

The distinction between a "customer" claim versus a "general" claim is crucial in a situation like the Lehman case, in which Mr. Giddens is winding down the brokerage in accordance with the Securities Investor Protection Act. Customer claims are paid 100 cents on the dollar from Mr. Giddens' coffers. The hedge funds who were creditors of the Lehman Brothers Europe prime-brokerage business, for instance, are expected to get all their money back if Lehman's settlements are approved.

The "general" claims get back far less, in accordance with the Lehman parent's payback plan. Lehman has made a total of $30 billion in distributions so far, and expects to make its next one spring.

Although the brokerage business isn't technically part of Lehman's Chapter 11 case, U.S. Bankruptcy Judge James Peck must approve the settlements. A hearing on the settlement with the holding company is set for April 16, while one on the U.K. settlement still isn't set.

Lehman collapsed in September 2008, becoming a symbol of one of the great financial crises in the country's history. Its U.S. brokerage business was quickly sold to Barclays PLC (BCS, BARC.LN), but the remnants of the rest of Lehman still exist in billions of dollars of assets being overseen by Alvarez & Marsal and the winddown of the brokerage business under Mr. Giddens's guidance.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Write to Joseph Checkler at joseph.checkler@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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