Just when you thought it was safe to return to Wall Street, Lehman Brothers is back. The Wall Street Journal is reporting that the vanquished investment bank has seemingly risen from the dead to reach out and commit violence against one of its old rivals, JPMorgan Chase (NYSE: JPM ) .
Attack of the zombie investment bank
The financial district's most bitter ghost is suing the superbank over derivatives claims (speaking of evil creatures that never die) made against Lehman Brothers Holdings, Lehman's bankruptcy estate. JPMorgan claims it's due $2.6 billion in terminated credit default swaps and other deals made between it and Lehman before the bankruptcy, as well as between Lehman and the also-defunct Bear Stearns, which JPMorgan acquired in the spring of 2008.
Lehman Holdings claims the JPMorgan figures are either inflated or just plain in error, and wants a bankruptcy court to slash them.
Who's next to be haunted by the ghost of Lehman past?
Lehman's was the largest bankruptcy in U.S. history. Add to that it was the country's fourth-largest investment bank, heavily involved in the arcane world of derivatives and other complex feats of Wall Street derring-do, and you have the makings of a potentially endless financial tangle.
This isn't the best time for JPMorgan to be facing another big writedown on its balance sheet, coming not long after the bank had to say goodbye more than $5 billion in the wake of the London Whale derivatives-trading fiasco (derivatives again: Anyone see a pattern here?). Another billion or so won't break JPMorgan, but even a bank of its size can't go on leaking billions forever.
And if JPMorgan is facing claims over past dealings with Lehman, what about Wall Street's other usual suspects, like Citigroup (NYSE: C ) , Bank of America (NYSE: BAC ) , Goldman Sachs (NYSE: GS ) , and Morgan Stanley (NYSE: MS ) ? At the height of the financial crisis it was made clear that all these banks were so interconnected that if one went down, the rest could easily follow. How long before we hear about zombie Lehman ghoulishly going after them for billion-dollar writedowns?
There's no news on that yet, but the century is young, Foolish readers. As you await further dispatches from beyond the grave, keep up with all the latest news on JPMorgan Chase and the other banks covered in this column by adding them to your free Motley Fool watch list:
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