JP MORGAN has been accused by its Wall Street rivals of dealing the final hammer blow that forced Lehman Brothers into collapse in a sensational claim that threatens to spark a colossal legal battle.

The giant American bank is alleged to have frozen $17 billion (£9.6 billion) of cash and securities belonging to Lehman on the Friday night before its failure.

According to Lehman’s biggest creditors, this was what precipitated the liquidity crisis that embroiled the firm, forcing it into Chapter 11 bankruptcy protection on the morning of Monday, September 15.

The allegations have been raised in a filing at the bankruptcy court in New York, lodged late last week. Lehman’s biggest creditors include almost every big firm on Wall Street, most of Europe’s heavyweight banks and insurance companies as well as a slew of Japanese and Chinese institutions that are owed several hundred billion dollars.

The funding lines provided to Lehman to finance its everyday operations amount to $188 billion, according to court filings.

The creditors are now demanding that JP Morgan open up its books to the bankruptcy court to allow the transactions to be assessed.

“The creditors’ committee understands that LBHI [Lehman Brothers Holding Inc] had at least $17 billion in excess assets which were held at JPMC [JP Morgan Chase] on the Friday going into the weekend before its bankruptcy filing,” the documents said.

“The creditors’ committee further understands that, on September 12, 2008, JPMC refused to allow LBHI access to its excess assets and instead ‘froze’ LBHI’s account. In freezing LBHI’s assets, JPMC was purportedly holding all of LBHI’s assets as a potential offset against any claims JPMC may have had against LBHI.”

The filing goes on to claim that “as a result of JPMC’s actions, LBHI suffered an immediate liquidity crisis, that could have been averted by any number of events, none of which transpired”.

Lehman’s collapse is fast emerging as the single biggest event of the credit crunch, sparking a number of unexpected effects.

The unravelling of the firm’s prime brokerage operations has already forced a number of hedge funds out of business.

Olivant, the investment group run by former Abbey boss Luqman Arnold, revealed last week that its 2.8% stake in UBS was held through an account at Lehman in London which the firm’s administrators are refusing to release.

Previous court documents have suggested that JP Morgan was owed $23 billion by Lehman in secured loans.

JP Morgan said: “These assertions raised by the creditors’ panel are unfounded conjecture. We will address them at the appropriate time in bankruptcy court.”

In London, Price Waterhouse Coopers, the administrators to Lehman Brothers in Europe, is wrangling with more than 60 stock exchanges and clearing houses around the world to recoup up to $3 billion Continued on page 2

Continued from page 1 that it says is owed to the defunct bank.

LCH Clearnet, the clearing house, has returned £217m to PWC in recent weeks and Eurex is also thought to have returned some funds.

The cash was held as margin – money that exchanges require in case a company goes bust.

LCH is one of the largest holders of these reserves, reflecting Lehman’s standing as the biggest trader on the London Stock Exchange.

An LCH spokeswoman said: “We have already given the administrators £217m of the margin we held for Lehman and it would be imprudent of us to return all the remaining margin until this has been completed.”

Tony Lomas, the lead administrator at PWC, said “constructive discussions” were continuing with other exchanges.

The art on the 30th and 31st floors of Lehman’s Canary Wharf headquarters in east London has been removed after appraisers valued it and is being stored in a “safe place”, Lomas said.

It will “be dealt with on another day when we have resolved more pressing matters”, he added. The works, which include oil paintings and bronze sculptures, are understood to be worth millions of pounds.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive