BarCap boss to testify on Lehman windfall claim

* BarCap CEO Diamond due in NY court Friday

* Lehman estate wants back $11.2 bln in assets

* Barclays says case sound, still owed assets

* Legal experts see uphill battle for Lehman case

By Chelsea Emery and Steve Slater

NEW YORK/LONDON, May 5 (BestGrowthStock) – Barclays President Bob
Diamond will face a grilling on Friday from creditors of Lehman
Brothers who charge him with taking advantage of the investment
bank’s collapse to strike too good a deal for his bank.

Diamond, who heads the Barclays Capital (BarCap) investment
bank business that swallowed up Lehman’s U.S. core, will be
called as a witness by creditors who want back $11 billion of
assets.

The 58-year-old, slammed by UK politicians in recent weeks
as a symbol of excessive banker pay, will appear on the final
day of testimony before a three-month break in the high profile
New York court case.

Lawyers for the Lehman estate, who have been questioning
witnesses for the past two weeks, want the judge who approved
the sale 20 months ago to revisit the transaction.

They claim Barclays negotiated a secret discount of over $5
billion on a $70 billion book of securities as the deal was
rushed through during a frantic few days. [ID:nN27257315]

Barclays (BARC.L: ), meanwhile, claims it is still owed assets
that Lehman has refused to deliver. Britain’s second-biggest
bank said Lehman’s assets were inflated when the deal was
struck, and it marked them to their true value.

The deal was always intended to be positive for BarCap’s
balance sheet strength, it said, accusing Lehman’s lawyers of
trying to change the deal after markets improved.

The case has made clear how chaotic Lehman was in September
2008, when it teetered on the brink and then became the biggest
U.S. bankruptcy.

“Everything was compressed,” said James Seery, a former
Lehman executive who took the stand on Tuesday. “There were
employees who wanted to leave — they were getting bid away by
other banks. It was hard keeping people in their seats. It was
hard dealing with customers. It was very, very difficult.”

UPHILL TASK

Diamond’s swoop for Lehman’s U.S. core provided the platform
for him to take on Wall Street’s top firms.

The former Credit Suisse (CSGN.VX: ) and Morgan Stanley (MS.N: ) (Read more about the money market today. )
banker has said the purchase worked out even better than
expected, allowing BarCap to grab market share and add equities
and advisory to its strong debt position at a time when rivals
were retreating. BarCap’s profits have since surged.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graph of Barcap’s profits: http://r.reuters.com/byx62k
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The British bank says the hurried deal was fair — and
U.S.-based legal experts said Lehman faces an uphill battle in
proving that Barclays arranged a secret discount and persuading
Judge James Peck to make changes to the original sale order.

“They really need to show fraud or some sort of conspiracy
between Lehman employees and Barclays because the judge is going
to be hesitant to overturn the sale absent some extreme
scenario,” said Stephen Lubben, law professor at Seton Hall
University School of Law.

“If Lehman comes up with some sort of smoking gun, I
wouldn’t be surprised to see a settlement. Even if the odds get
to 50-50, Barclays might want to settle. Right now, they aren’t
there yet. Barclays doesn’t have any incentive to settle.”

Anthony Sabino, an attorney for New York law firm Sabino and
Sabino and a professor at St. John’s University’s Tobin School
of Business, added: “This has always been a very uphill battle
(for Lehman). The sale is final, and we have a lot of rules that
control the finality of sales in bankruptcy situations.”

Peck is expected to make his ruling in around November,
which is likely to be followed by a lengthy appeal process.

Barclays investors and bank analysts do not appear unduly
concerned by the lawsuit over 3,000 miles from the bank’s HQ,
albeit wary that all litigation is unpredictable.

“Everybody has it at the back of their minds and are aware
of (the case), but I don’t think people are factoring in
anything specific for it. You are dealing with the U.S. courts
and the outcome is uncertain,” said Simon Maughan, analyst at MF
Global in London.

Diamond’s appearance will come a day after a UK election,
during which he has been criticised for his pay.

The Concord, Massachusetts-born son of two teachers is
affable and charismatic, but colleagues have said he has a
dislike of bad news and is quick to bat back any negativity.

He received 26 million pounds last year for shares cashed in
from the sale of asset management arm BGI, prompting a senior
government official to brand him the “unacceptable face” of
banking.

Diamond, who joined Barclays 14 years ago, now spends much
of his time in New York. Post-Lehman, over 40 percent of
BarCap’s profits come from the United States.

Rich Ricci, one of his key lieutenants at BarCap, is due to
be called to testify on Thursday.

Stock Market Research

(Editing by David Cowell)

BarCap boss to testify on Lehman windfall claim