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Fees for Unwinding Lehman Brothers to Pass $2 Billion

By Jennifer Hughes, Telis Demos and Nicole Bullock, Financial Times
Tuesday, 14 Sep 2010 | 6:47 AM ET

Fees paid to lawyers and accountants for unwinding Lehman Brothers in the US and Europe are on track to surpass $2 billion even after some of the legal services have been provided at discounted rates.

Ernie McClellan

The fees charged to Lehman’s US estate stood at $917 million in July and should top $1 billion this month. In London, expenses for unwinding the European arm, with legal costs, are estimated at almost $900 million.

The US estate is paying more than 1,000 people while in London, PwC, the administrators to Lehman’s main European operations, still has more than 300 of its people on the project.

In spite of the huge headline numbers, bankruptcy experts say the total cost of dealing with the assets of the collapsed bank are small when measured against the size of its $691 billion balance sheet when it failed.

Fees in other famous bankruptcy cases, such as WorldCom and Enron, came to between 1 percent and 2 percent of the assets, said Douglas Baird, a professor at the University of Chicago Law School. “If you look at the Lehman fees relative to the percentage of assets, it is peanuts,” Prof Baird said.

A court-appointed committee led by Kenneth Feinberg, the former Wall Street “pay tsar” and current watchdog of the BP oil spill fund has pared back fees by $5.2 million, for reasons ranging from incomplete breakdowns of expenses to overcharging for overtime meals.

Some US lawyers have allowed discounts. Anton Valukas of Jenner & Block, who produced the examiner’s report this year, discounted his firm’s fees by 10 percent, although it still collected $54 million.

The fee rate is expected to fall in the next year as more work is completed. This has led staff in the US and Europe separately to consider creating consultancies based on the skills developed from Lehman’s complexities.

In the US, Alvarez & Marsal, the restructuring firm that has served as Lehman’s management, has set up Legacy Asset Management Company, or Lamco, to retain former Lehman staff and handle about $60 billion in commercial loans, real estate, derivatives and private equity investments.

Bryan Marsal, co-founder of Alvarez & Marsal and chief executive of Lehman, said the recoveries to creditors will “far exceed not only the cost of A&M professionals who have worked on this engagement, but the cost of all legal and professional services combined.”

In addition to its Lehman work, Lamco is seeking to market its skills with troubled assets to outside clients and investors.

Tom Bolland, currently co-chief operating officer of LBIA, the central unit in Lehman’s bankrupt European operations, and formerly Lehman’s chief risk officer for Europe, said: “What we have now is a high-end, highly qualified support network.

“This client [Lehman], if you like, comes to end, but it doesn’t mean we can’t develop new ones over time,” he added.

-- Additional reporting by Anousha Sakoui

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