A U.S. bankruptcy judge said Lehman Brothers Holdings Inc could inject another $100 million into its Aurora Bank unit so that it does not fall below the required regulatory capital level.

At a court hearing in Manhattan on Wednesday, Judge James Peck said he would approve the additional funding for the bank, which has already received about $250 million of capital contributions from Lehman since March.

Aurora Bank FSB, formerly known as Lehman Brothers Bank, employs the bulk of the remaining Lehman Brothers staff and could be worth as much as $1 billion to Lehman Brothers creditors along with the company's other bank, Utah-based Woodlands.

The bank has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit.

Aurora was in advanced discussions with the Office of Thrift Supervision and the Federal Deposit Insurance Corp to resolve its issues, and has submitted a business plan to them, Alfredo Perez, a lawyer for Lehman Brothers, said at the hearing on Wednesday.

If all goes well, he said, Lehman could file a plan with the court by the end of the year so Aurora could operate without the need for continued capital infusions.

The need for the latest capital contribution resulted from changes in the fair value of some of the bank's assets, Perez said.

Peck also approved Lehman's plan to pay $50 million in bonuses to its employees who are working on unwinding its derivatives contracts. The judge said such bonuses were appropriate for the type of highly specialized employees Lehman wants to retain to do this work.

Lehman hired hundreds of its former bankers and other financial experts to help it unwind the complex contracts that were left in disarray when the company filed for bankruptcy protection on September 15, 2008, in the largest U.S. bankruptcy filing in history.

BARCLAYS MOTION DENIED

Later on Wednesday, Judge Peck denied a Barclays Capital Inc motion to compel documents from the Trustee and Official Committee of Unsecured Creditors. The British bank's motion had asked for a waiver of attorney-client privilege.

The Court is not persuaded by Barclays' insistence that they necessarily waive the attorney client privilege, Judge Peck said. Attorney-client privilege is critically important for open and free communication, he said.

Barclays has been fighting claims by Lehman that it got too good a deal when it bought Lehman's core U.S. brokerage last year.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Additional reporting by Chelsea Emery in New York)

(Reporting by Emily Chasan; Editing by Lisa Von Ahn and Robert MacMillan)

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