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Three years into the bankruptcy of Lehman Brothers, Credit Suisse made a bold move. It was around 2011 and most of its peers were settling claims that Lehman owed them billions from failed derivatives trades. Instead of joining in, Credit Suisse, which had said Lehman owed it $1.2 billion from such trades, decided to sell most of that claim to hedge funds, according to people with knowledge of the matter. The transaction, which requires Credit Suisse to pay back the hedge funds with interest if its claim isn't allowed, gave the bank a slug of cash during a difficult period, while letting it forge ahead with a legal battle for the full amount it said it was owed. Now, the trade may be coming back to haunt the Swiss lender. Credit Suisse is the last large holdout among banks in the derivatives dispute.
Only one bank, Citigroup Inc., took its case to trial, but last month settled for a fraction of what it sought. Unless Credit Suisse fares better, the trades with hedge funds leave it at risk of having to pay back hundreds of millions of dollars with interest to the investors, said the people, who asked not to be identified because the transactions were private.
Representatives for the Zurich-based lender declined to comment, as did Lehman. Credit Suisse continues...