Barclays to deny claims over Lehman 'windfall'

Barclays President Bob Diamond was due to appear yesterday, followed today by chief executive John Varley.

Creditors of Lehman Brothers accuse Barclays of taking advantage of the investment bank's collapse to obtain an $11bn windfall from Barclays' takeover of Lehman's US operations.

Lehman creditors want the judge, who approved the transaction 21 months ago, to review the sale.

In testimony in New York bankruptcy court early yesterday, Lehman Brothers Holdings chief executive Bryan Marsal said he had believed that the purchase of Lehman would be a "wash" but that Barclays quarterly earnings, released after absorbing Lehman, "indicated there'd been a substantial built-in gain from the transaction itself, which would suggest that net assets received were greater than liabilities assumed".

A Barclays explanation did not adequately answer Mr Marsal's questions on why there had been a gain, he said, and "it became clear there was a significant disagreement between Lehman estate and Barclays without an answer" on an amount of accrued liabilities, severance and cure. Upon cross-examination, Mr Marsal said he did not know that Barclays had made press announcements that it would make a gain on the transaction.

Mr Marsal is overseeing the liquidation of the remaining US assets.

US-based legal experts have said Lehman faces an uphill battle in proving that Barclays arranged a secret discount and persuading the judge to change the original sale order.

Barclays has said Lehman's assets were inflated when the deal was struck, and it marked them to their true value.

It has accused Lehman's lawyers of trying to change the deal after markets improved.

The deal has worked out well for BarCap, delivering bumper profits as capital markets have improved and allowing it to grab market share and add equities and advisory at a time when Wall Street rivals were retreating.