Lehman prepares bank units for sale or shutdown

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Lehman Brothers Holdings Inc, the bankrupt US investment bank, needs at least USD 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 September 15, 2008, the largest US bankruptcy filing in history.

In a filing with a US bankruptcy court on Wednesday, Lehman sad 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 USD 1.2 billion and USD 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 USD 677.6 million and USD 741.6 million, respectively, for a combined value of USD 1.42 billion.

Lehman said it will transfer USD 477 million in cash to Aurora and would need to put USD 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 USD 200 million cash contribution to Woodlands and an additional USD 72 million capital commitment that has not been drawn upon.