The Federal Home Loan Bank of New York has agreed to pay $70 million to the remnants of Lehman Brothers Holdings Inc. to settle a lawsuit over soured interest-rate swaps, the Wall Street Journal reported today. The Federal Home Loan Bank (FHLBNY) announced the settlement in a regulatory filing on Wednesday as a trial on the dispute was under way in U.S. Bankruptcy Court in New York. Lehman and its Special Financing unit sued FHLBNY in 2015 for more than $150 million it said it was owed from its position on 356 swaps and options transactions. Lehman said it was in the money on the swaps at the time of its 2008 bankruptcy filing. Although Lehman officially exited bankruptcy protection in 2012, its derivatives team is still wrangling with creditors over billions of dollars in disputed claims. Swaps and other derivatives represent a significant source of cash for Lehman creditors waiting to be paid more than eight years after the investment bank filed for bankruptcy protection. FHLBNY used the swaps with Lehman as a hedge against rising interest rates with the bank paying a fixed rate to Lehman and the investment bank paying a floating rate. If rates fell, Lehman was in the money. Lehman’s chapter 11 filing on the morning of Sept. 15, 2008, froze financial markets and constituted an “event of default” that triggered the termination of millions of derivatives transactions involving the investment bank. Three days later on Sept. 18, FHLBNY terminated its swaps with a notional amount of $16.5 billion with the bankrupt investment bank.
