The difference between the monies transferred to Barclay's and the amounts actually disbursed may have accounted for almost a third of Barclay's reported pre-tax profits.
One would have to wonder if the Barclay's executives were paid bonuses on such impressive financial results.
Thus do fees and bonus money provide a cornucopia of personal enrichment to the financiers at the expense of the real economy.
Financial Times
Barclays questioned on funds
By Francesco Guerrera, Greg Farrell and Julie MacIntosh in New York
March 5 2009 11:03
Lehman Brothers’ US liquidators have asked Barclays to explain what happened to an estimated $3.3bn earmarked for bonuses and other liabilities that the UK bank received when it acquired part of the bankrupt Wall Street company last year.
The move by Bryan Marsal, who heads the firm managing Lehman’s US liquidation, underlines the tension between the company’s creditors and Barclays, which acquired the North American arms of the investment bank for $1.5bn after it filed for bankruptcy in September.
The decision by Alvarez & Marsal, charged with recovering funds for creditors, to query Barclays’ use of the money could fuel controversy over bonuses paid to Lehman executives who stayed with the UK bank.
In its yearly results last month, Barclays booked a gain of £2.3bn ($3.3bn) on the difference between the fair value of the assets and liabilities acquired from Lehman and the price paid for them. The gain accounted for about a third of Barclays’ pre-tax profits and helped Barclays Capital, its investment banking arm, to record a profit of £1.3bn.
People close to the situation said Mr Marsal wrote to Barclays on February 19 asking it to reconcile the $4.2bn transferred to the UK bank after the takeover – composed of $2bn for compensation and $2.25bn for other purposes – with his firm’s estimate that BarCap has so far spent about $900m.
Mr Marsal’s letter – sent to Rich Ricci, BarCap’s chief operating officer, and Jonathan Hughes, its general counsel – says that, under the takeover deal, Barclays received $2bn from Lehman to pay bonuses and severance to transferring employees, according to people who have seen the document. However, Alvarez & Marsal estimates Barclays had to pay only about $700m in bonuses and severance, these people say.
The liquidators’ analysis of Lehman’s internal documents concluded that the total amount of compensation set aside for the investment bank’s global workforce until the end of August was $1.3bn. But because Barclays bought only Lehman’s North American operations, whose 10,000-plus employees accounted for 55 per cent of the compensation pool, its expenses should have been about $700m.
The agreement between Barclays and Lehman also provided for the transfer of cash and collateral, including $2.25bn to pay for liabilities to be settled after the takeover, according to people who have seen the letter. However, in the document Alvarez & Marsal calculates that Barclays’ payments for these liabilities have been about $200m, and the estimate for the final amount is much lower than expected, these people said.
People close to the situation said Barclays had written to Mr Marsal on February 23 saying BarCap was open to discussing the issues but rejected the suggestion that the original takeover agreement should be amended.
Barclays said on Wednesday: “Alvarez & Marsal’s position is completely without merit, baseless and a serious misunderstanding of the facts. All of these matters were approved by the New York bankruptcy court in September 2008.”
Lehman Brothers Holdings, the bank’s remaining businesses, now managed by Alvarez & Marsal, said it was “not making any allegations but is simply requesting factual information from Barclays as to certain discrepancies”.
