Barclays 2011 Annual Report Download - page 250

Notes to the financial statements
For the year ended 31 December 2011 continued
30 Contingent liabilities and commitments continued
Barclays Capital US Mortgage Activities
Barclays activities within the US residential mortgage sector during the period of 2005 through 2008 included: sponsoring and underwriting of
approximately US$39bn of private-label securitisations; underwriting of approximately US$34bn of other private-label securitisations; sales of
approximately US$150m of loans to government sponsored enterprises (GSEs); and sales of approximately US$3bn of loans to others. In addition,
Barclays sold approximately US$4bn of loans to Protium in 2009. As a result of Barclays acquisition of Protium in April 2011, Barclays reacquired the
loans previously sold to Protium. Some of the loans sold by Barclays were originated by a Barclays subsidiary. Barclays also performed servicing activities
through its US residential mortgage servicing business which Barclays acquired in Q4 2006 and subsequently sold in Q3 2010.
In connection with Barclays loan sales and some of its sponsored private-label securitisations, Barclays made certain loan level representations and
warranties (R&Ws) generally relating to the underlying borrower, property and/or mortgage documentation. Under certain circumstances, Barclays may
be required to repurchase the related loans or make other payments related to such loans if the R&Ws are breached. As at 31 December 2011, Barclays
R&Ws in respect of approximately US$1bn of loans sold to others (which excludes the reacquired loans previously sold to Protium and loans sold to
GSEs) had expired. The R&Ws with respect to the balance of the loans sold to others were not subject to expiration provisions. However, such loans
were generally sold at significant discounts and contained more limited R&Ws than loans sold to GSEs. Third party originators provided loan level R&Ws
directly to the securitisation trusts for approximately US$34bn of the US$39bn in Barclays sponsored securitisations. Barclays or a subsidiary provided
loan level R&Ws to the securitisation trusts for approximately US$5bn of the Barclays sponsored securitisations. R&Ws made by Barclays in respect of
such securitised loans, and the loans sold by Barclays to GSEs, are not subject to expiration provisions. Total unresolved repurchase requests associated
with all loans sold to others and private-label activities were US$21m at 31 December 2011. Current provisions are adequate to cover estimated losses
associated with outstanding repurchase claims. However, based upon a large number of defaults occurring in US residential mortgages, there is a
potential for additional claims for repurchases.
Claims against Barclays as an underwriter of RMBS offerings have been brought in certain civil actions (see page 249). Additionally, Barclays has
received inquiries from various regulatory and governmental authorities regarding its mortgage-related activities and is cooperating with such inquiries.
It is not practicable to provide an estimate of the financial impact of the potential exposure in relation to Barclays Capital US Mortgage activities.
31 Legal Proceedings
Lehman Brothers Holdings Inc.
On 15 September 2009, motions were filed in the United States Bankruptcy Court for the Southern District of New York (the Court) by Lehman Brothers
Holdings Inc. (LBHI), the SIPA Trustee for Lehman Brothers Inc. (the Trustee) and the Official Committee of Unsecured Creditors of Lehman Brothers
Holdings Inc. (the Committee). All three motions challenged certain aspects of the transaction pursuant to which BCI and other companies in the
Group acquired most of the assets of Lehman Brothers Inc. (LBI) in September 2008 and the court order approving such sale. The claimants were
seeking an order voiding the transfer of certain assets to BCI; requiring BCI to return to the LBI estate alleged excess value BCI received; and declaring
that BCI is not entitled to certain assets that it claims pursuant to the sale documents and order approving the sale (the Rule 60 Claims). On 16
November 2009, LBHI, the Trustee and the Committee filed separate complaints in the Court asserting claims against BCI based on the same
underlying allegations as the pending motions and seeking relief similar to that which is requested in the motions. On 29 January 2010, BCI filed its
response to the motions and also filed a motion seeking delivery of certain assets that LBHI and LBI have failed to deliver as required by the sale
documents and the court order approving the sale (together with the Trustee’s competing claims to those assets, the Contract Claims). Approximately
US$4.2bn (£2.7bn) of the assets acquired as part of the acquisition had not been received by 31 December 2011, approximately US$3.0bn (£2.0bn) of
which were recognised as part of the accounting for the acquisition and are included in the balance sheet as at 31 December 2011. This results in an
effective provision of US$1.2bn (£0.8bn) against the uncertainty inherent in the litigation.
On 22 February 2011, the Court issued its Opinion in relation to these matters, rejecting the Rule 60 Claims and deciding some of the Contract Claims
in the Trustee’s favour and some in favour of BCI. On 15 July 2011, the Court entered final Orders implementing its Opinion. BCI and the Trustee have
each filed a notice of appeal from the Court’s adverse rulings on the Contract Claims. LBHI and the Committee have withdrawn their notices of appeal
from the Court’s ruling on the Rule 60 Claims, rendering the Court’s Order on the Rule 60 Claims final.
If the final Orders relating to the Contract Claims were to be unaffected by future proceedings, Barclays estimates that after taking into account the
effective provision of US$1.2bn (£0.8bn), its loss would be approximately US$4.3bn (£2.8bn). Any such loss, however, is not considered probable and
Barclays is satisfied with the current level of provision.
In addition, LBHI had been pursuing a claim for approximately US$500m relating to bonuses that BCI was allegedly obligated to pay to former Lehman
employees. On 14 September 2011, the Court issued a decision dismissing that claim and entered a final Order to that effect on 21 September 2011.
LBHI has stated that it will not appeal that decision, rendering the Order dismissing that claim final.
248 Barclays PLC Annual Report 2011 www.barclays.com/annualreport