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Lehman obtains court OK to raise capital level of bank subsidiary
By Rebecca Melvin
New York, Feb. 17 - Lehman Brothers Holdings Inc. received court approval to increase the capital level of Lehman Brothers Bank, FSB through a settlement and a direct $15 million capital contribution, according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.
Lehman said in its motion that it was critical that the regulatory capital level of Lehman Brothers Bank, which is an indirect wholly owned non-debtor subsidiary of Lehman Brothers, be increased to avoid appointment of a receiver and to preserve fair value of both Lehman Brothers Bank and Woodlands Commercial Bank.
Under the settlement, Lehman will convey ownership of some rights and funds to Lehman Bank wholly owned subsidiary Aurora Loan Services, LLC.
A $15 million cash capital contribution will be made to the bank to enable the bank to comply with the reporting requirements.
As previously reported, the bank's assets and debt had not changed significantly since Sept. 30, but Lehman said the extraordinary conditions that have hit the financial markets in the last few months resulted in a fair value accounting methodology requiring the bank to show the value of Lehman's equity interest to have materially decreased.
Lehman said the bank's loan portfolio must be reflected at substantially lower values than that which management believes could be achieved through an orderly asset sale under normal credit market conditions.
Unless the bank complies with these regulations, Lehman said the bank faces an imminent risk that a receiver would be appointed, which would likely result not only in seizure and fire sale of the bank's assets, but also a risk that Woodlands could be seized.
New York-based Lehman Brothers Holdings is the fourth largest investment bank in the United States. The company filed for bankruptcy on Sept. 15. Its Chapter 11 case number is 08-13555.
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