Lehman Brothers preps bank units for sale or shutdown

Lehman Brothers Holdings Inc, the bankrupt U.S. investment bank, needs at least $550 million to keep its two bank units going as it prepares to sell them or shut them down in 18 months, court documents show.  

The move is part of the unwinding of Lehman's operations nearly two years after it filed for bankruptcy on Sept 15, 2008, the largest US bankruptcy filing in history. 

In a filing with a US bankruptcy court on Wednesday, Lehman said it was faced with a choice of either allowing the units to fail or injecting capital into their balance sheets to recover significant value for its creditors.  

It asked the court to approve settlements with the banks and wants to be allowed to sell Aurora Bank FSB, formerly known as Lehman Brothers Bank, within 18 months or shut it down if unable to find a buyer.  

Aurora has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit. 

It also asked the court to approve a settlement agreement that would allow it to sell or dissolve its other banking unit, Woodlands Commercial Bank. It faces similar restrictions from regulators due to capital requirements.                                           

Failure to resolve the capital issues at the banks would result in estimated losses of between $1.2 billion and $3.6 billion, Lehman said. 

Lehman said based on June 30, 2010 regulatory reports, the values of its equity interest in Aurora and Woodlands were at $677.6 million and $741.6 million, respectively, for a combined value of $1.42 billion.                                           

Lehman said it will transfer $477 million in cash to Aurora and would need to put $75 million into Woodlands.                                           

It noted that since February 2009, Lehman has taken a series of steps to support the banks' capital levels, including making a $200 million cash contribution to Woodlands and an additional $72 million capital commitment that has not been drawn upon.   

The case is In re: Lehman Brothers Holdings Inc, US Bankruptcy Court, Southern District of New York, No 08-13555.