Lehman, Citi settle $2bn 2008 financial crisis dispute

Citigroup and the wreckage of Lehman Brothers Holdings have resolved a fight over US$2.1 billion that dates to the financial crisis, while quietly burying a key question about derivatives-trading practices.

Citigroup agreed on Friday that it will give back $1.74bn to the estate of the failed New York-based investment bank.

Citigroup had kept about $2.1bn that Lehman had on deposit with it for trades on everything from interest rates to corporate and sovereign debt at the time of the 2008 bankruptcy. That will be a boon for Lehman’s unsecured creditors in the 10-year-old case.

The settlement came 40 days into an epic trial in New York that began last April, and was shedding new light on the frenzied weekend before Lehman’s bankruptcy filing on September 15, 2008.

Lehman brought up phone recordings and messages from Citigroup traders, saying comments like “ringing the register, homey” showed how the bank tried to feast on Lehman’s carcass.

Citigroup said it was following accepted standards on closing out trades.

“Citi is pleased to have reached a settlement with Lehman that resolves all of the parties’ outstanding disputes,” a Citigroup spokeswoman said.

The pact “furthers management’s goals of resolving legacy matters stemming from the financial crisis and focusing on Citi’s strategic business objectives,” she said.

Lehman is also pleased, a spokeswoman said. In court papers, Lehman managing director Steven Mullaney said the pact is “reasonable in light of the complexities of the litigation” and the cost of fighting to the end.

The dispute arose because Citigroup said it was owed $2bn as a result of Lehman’s bankruptcy. Lehman argued that wasn’t so, and that the money in fact should go to its creditors. It accused Citigroup of concocting the claim, which it thought it could make because it already had access to $2bn through the deposit. Citigroup made up prices such as “phantom transaction costs” to try and justify its claim, Lehman said.