LBHI's suit against JPMorgan over collateral and guaranties

analysisAccording to LBHI's May 2010 complaint, JPMorgan Chase Bank, N.A. provided clearing services to Lehman Brothers Inc. under a clearance agreement for the eight years before the bankruptcy, acting each day as intermediary for most of its trades and triparty repurchase transactions and receiving hundreds of millions of dollars in fees. This description comes from LBHI's own pleading. ¹

analysisIn the complaint, filed as an adversary proceeding with the creditors' committee as proposed intervenor, LBHI alleged that JPMorgan, using its position as clearing bank, insisted in late August 2008 that LBHI guarantee its subsidiaries' clearing obligations, coerced it under the threat of cutting off clearing into further one-sided agreements early on September 10, 2008 while it was insolvent, and through repeated collateral demands took $8.6 billion of cash collateral in the last four business days before the filing although it was already overcollateralised. LBHI asked the court to declare the agreements invalid, to order the return of its assets or their value, to award $5 billion of direct damages and other damages and to subordinate or disallow JPMorgan's claims. These are LBHI's allegations and demands, not findings of the court, and the complaint itself records no outcome. JPMorgan moved to dismiss. On April 19, 2012 the Bankruptcy Court signed a memorandum decision granting the motion in part and denying it in part in adversary proceeding 10-03266; the retained record does not show the later course or outcome of the case. ^{1 2}

analysisThe examiner found colorable claims against Lehman's secured lenders JPMorgan Chase and Citibank in connection with modified guaranty agreements and collateral demands in Lehman's final days, and stated that those demands had a direct impact on Lehman's liquidity pool. He applied his colorable-claim standard and was not the ultimate decision-maker. LBHI sued JPMorgan in May 2010, and JPMorgan moved to dismiss that complaint, which rests on related allegations; the retained record contains no response from Citibank and no suit against it on these grounds. ^{1 2}