First BanCorp on Monday announced the U.S. Bankruptcy Court for the Southern District of New York denied the bank’s motion for summary judgment filed in connection to $66.6 million it had posted as collateral with Lehman Brothers Inc., which filed for Ch. 11 nearly five years ago.
“When Lehman filed for bankruptcy, it did not return that collateral and transferred it to Barclays Capital,” First BanCorp.’s President Aurelio Alemán explained to this media outlet.
The issue at hand relates to the claim that the bank filed against Barclays Capital in an attempt to recover the securities — or the cash equivalence — that were posted as collateral in connection with certain interest hedge agreements executed with a Lehman affiliate.
“At the time, we filed two claims, one was informing Barclays that the collateral belonged to us and another under the Securities Investors Protection Act (SIPA), stating our status as client and saying when the time came to distribute, that sum was ours,” Alemán said. “We never got anything back and had that pending as a pending account receivable, even though in reality, it’s a non-performing asset.”
In fact, FirstBanCorp classified the pledged securities as a non-performing asset with a book value of $64.5 million in 2009.
Because of the bankruptcy court’s decision last Friday, FirstBank’s parent company determined “it is probable that the asset has been impaired” and will recognize the $64.5 million, plus $2.1 million in accrued interest, as an NPA during the second quarter of 2013 to write-off the carrying value of the pledged securities.
The bank intends to appeal the court’s decision denying its Motion for Summary Judgment, the financial institution stated.
In addition to this lawsuit, the corporation continues to pursue its claim filed in the bankruptcy court in January 2009 in the proceedings under SIPA with regard to Lehman, on the basis that it was a “customer” that “entrusted” the pledged securities to Lehman for safe keeping, and, accordingly, should be afforded protection thereunder. The court has yet to revolve on the corporation’s claim.
“Over the past three years we have been diligently working with counsel in this litigation and have been reporting the status of the litigation in our corporate filings. Based on Friday’s court decision, we have determined to take the full impairment charge,” Alemán said.
“We will continue our efforts through the legal process to recover the value of the assets that we strongly believe belong to the corporation,” he said. “Despite the impact of this charge in the second quarter, our capital ratios will remain strong.”