Lehman Brothers Boosts Its Cash Estimate to $40.5 Billion

Lehman Brothers Holdings Inc. expects to have $40.5 billion in cash on its books in the coming years, a $6 billion increase from an earlier estimate, buoyed by gains from litigation and its real-estate holdings and derivatives positions, along with recoveries from settlements with foreign affiliates.

In a filing Wednesday night in U.S. Bankruptcy Court in New York, Lehman said it is boosting its cash estimate based on including $1.1 billion it collected last year in settlements with J.P. Morgan Chase & Co. (JPM) and Bank of America Corp. (BAC).

Another chunk of cash, some $2.4 billion, is expected to come from gains in Lehman's real-estate holdings and derivative positions. Those gains, however, will be partially offset by losses on Lehman's corporate and residential loan portfolio and private equity holdings.

Lehman's last estimate of how much cash it would eventually have in its coffers dates back to last August. The failed investment bank said it is updating that estimate based on recoveries from a number of legal settlement and intercompany claims.

The biggest portion of new cash expected to flow into Lehman's coffers will come from settlements with the failed investment bank's "non-controlled" foreign affiliates. Lehman increased its estimate by $3.5 billion to $7.6 billion, from $4.2 billion a year ago.

Lehman's September 2008 Chapter 11 filing triggered foreign bankruptcy proceedings for more than 80 of the bank's far-flung affiliates. The holding company has reached settlements on intercompany claims with virtually all of its foreign affiliates, including those in the U.K., Japan and Hong Kong.

But the bank has yet to reach a deal with several holdouts, among them the administrators winding down its former Switzerland-based derivatives unit and its Australian subsidiary.

Lehman's holding company also has yet to reach a final deal on intercompany claims with the trustee winding down its former U.S. brokerage unit. However, the two sides have an agreement "in principle," according to court papers.

Lehman Brothers officially emerged from Chapter 11 bankruptcy protection in March and began paying back creditors the following month. Although Lehman is out of bankruptcy protection, its case is far from over and will likely continue for years as a bankruptcy team liquidates Lehman's assets.

Exactly when that end will be is unknown given Lehman's ongoing litigation with former affiliates and derivative counterparties. Lehman said it is increasing its estimate of net cash through its "estimated end of activities."

Lehman, once the nation's fourth-largest investment bank, collapsed in the largest bankruptcy in history. Since then, a team of bankruptcy professionals under the direction of Alvarez & Marsal Inc. has managed Lehman's assets. Lehman says it expects to pay those employees some $751 million in compensation and benefits from 2012 through sometime beyond 2015. It expects to pay out another $767 million in professional fees for the same time period.

In April, Lehman made its initial distribution to creditors, paying out $22.5 billion. The next wave of distributions in the company's roughly $65 billion creditor-payback plan is set for later this year.

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

Write to Patrick Fitzgerald at [e-mail]. Follow him on Twitter @WSJBankruptcy

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