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Lehman creditors' recovery may soon reach $7.8 billion

People walk past the Lehman Brothers headquarters in New York, September 16, 2008. REUTERS/Chip East

NEW YORK (Reuters) - The trustee liquidating Lehman Brothers Holdings Inc's brokerage unit on Monday asked a federal bankruptcy judge for permission to distribute another $1.89 billion to unsecured creditors, boosting their total recovery to $7.78 billion (5 billion pounds).

James Giddens, the trustee, said the creditors will have recouped 35 cents on the dollar, up from 27 cents so far, if the proposed third payout wins approval from U.S. Bankruptcy Judge Shelley Chapman at an August 4 hearing in Manhattan.

"This result, in the largest broker-dealer insolvency in history, could not have been anticipated in the dark days of the

financial crisis when this liquidation began," Giddens said in a court filing.

Lehman had been Wall Street's fourth-largest investment bank

before seeking Chapter 11 protection on Sept. 15, 2008.

Roughly 111,000 former customers of the brokerage have already been paid more than $106 billion, and senior creditors have also been paid in full.

Giddens said the latest payout includes $1.18 billion that he had held in reserve.

He said this included $583 million for disputes over Barclays Plc's hurried purchase of much of the brokerage unit a few days after the bankruptcy filing. Those disputes were settled on June 5.

The case is In re: Lehman Brothers Inc, U.S. Bankruptcy

Court, Southern District of New York, No. 08-01420.

(Reporting by Jonathan Stempel in New York; Editing by Christian Plumb)