'JPMorgan, Citigroup helped cause Lehman collapse'

JPMorgan Chase & Co and Citigroup Inc helped cause the failure of Lehman Brothers Holdings Inc by demanding more collateral and changing guarantee agreements, according to a court-ordered report on the biggest bankruptcy in US history.

“The demands for collateral by Lehman’s lenders had direct impact on Lehman’s liquidity,” said Anton Valukas, the bankruptcy examiner, in a 2,200-page document filed yesterday in Manhattan federal court. “Lehman’s available liquidity is central to the question of why Lehman failed.”

Former Lehman Chief Executive Officer Richard Fuld, ex-Chief Financial Officer Erin Callan, former Executive Vice President Ian Lowitt and former Managing Director Christopher O’Meara certified misleading statements about the bank’s finances, according to the report. Fuld, 63, was “at least grossly negligent,” Valukas said. New York-based Lehman collapsed in September 2008 with $639 billion in assets.

In addition to his conclusions regarding New York-based Citigroup and JPMorgan, Valukas said of London-based Barclays Plc’s purchase of Lehman’s North American brokerage that a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.” He added that the value of the assets may not be “material.”

Kerrie Cohen, a Barclays spokeswoman in New York, and Brian Marchiony, a JPMorgan spokesman, declined to comment.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, said in an e-mailed statement that the bank is reviewing the report, and that a preliminary analysis shows the examiner “has not identified any wrongdoing on Citi’s part.”

Lewis Liman, a lawyer for Lowitt, who is now at Barclays, said in an e-mailed statement his client did nothing wrong.

“In the three months during which he held the job, Lowitt worked diligently and faithfully to discharge all of his duties as Lehman’s CFO,” Liman said. “Any suggestion that Lowitt breached his fiduciary duties is baseless.”

Barclays is Britain’s second-biggest bank. Citigroup is the third biggest US bank, and JPMorgan is second. Bank of America Corp is the biggest US bank by assets.

Fuld was warned months before the bankruptcy by Treasury Secretary Henry Paulson that Lehman might fail if it continued to report losses without finding a buyer or formulating a survival plan, according to Valukas’s report.

Fuld was “at least grossly negligent in causing Lehman to file misleading periodic reports” while its risks were rising because of long-term assets financed with short-term debt, Valukas said in the report.

Lehman’s executives engaged in conduct ranging from “non- culpable errors of business judgment” to “actionable balance sheet manipulation,” as they used “accounting gimmicks” to move assets off the balance sheet without disclosing that to the government, rating-agencies, investors or Lehman’s board.