Lehman Brothers Holdings Inc is expected to begin the sale process for Aurora Bank, worth around $850 million, by June as the bankrupt firm sells off pieces of itself to pay off creditors, sources familiar with the situation said. Investment banks KBW Inc and Lazard Ltd are expected to advise the Lehman estate on the sale of the unit, sources said.
Wilmington, Delaware-based Aurora, which was formerly known as Lehman Brothers Bank, has assets of about $4.4 billion. It services a loan portfolio of about $74 billion for others as of December 31, according to regulatory filings.
The sale comes as the fighting has increased among creditors over how much they will be paid back by Lehman, which was once a major Wall Street investment bank with $639 billion in assets but collapsed at the height of the financial crisis in September 2008.
Last week, creditors including banks like Goldman Sachs and hedge funds, stepped up their fight for a bigger piece of that payback.
There are now three possible plans for the eventual winding down of Lehman's assets, including one from the Goldman group, one from investors including Paulson & Co, and one from the Lehman.
Some Lehman businesses, such as its capital markets division, were sold at the time of bankruptcy, but it still has a list of assets that it will sell to raise money to pay back creditors. For instance, it also still has its smaller Woodlands Commercial Bank to sell.
Lehman, Lazard and KBW declined to comment. The sources are anonymous because they were not authorized to speak publicly to the media.
The sale of Aurora has been expected since last year after Lehman made an agreement with regulators to put new money into the bank and agreed to either sell or liquidate it within 18 months. That sale was approved by Federal bankruptcy court in Manhattan in November, setting a May 2012 deadline.
Any proceeds from the sale will essentially go to pay back creditors, but will be offset partly by Lehman's transfer of about $535 million in cash and $336 million in mortgage loans to Aurora late in 2010.
Lehman may find some bidders interested only in parts of Aurora, such as the loan servicing portfolio, as opposed to the whole bank, two sources said.
Lehman's preference is for the sale of the whole company, but it might consider splitting the company depending on the bids it gets, these sources added.