NEW YORK (Reuters) - A U.S. bankruptcy judge approved a revised version of British bank Barclays Plc’s deal to purchase the core U.S. business of Lehman Brothers Holdings Inc.

In a Manhattan court hearing that started on Friday and lasted past midnight, U.S. Bankruptcy Judge James Peck approved the sale, saying he had found no better alternative for the assets Lehman sought to sell.

“This week more than any other week since I was appointed to the bench I have felt the awesome power of this job,” Peck told a packed Manhattan court room, at the end of a nearly seven-hour hearing.

“I have to approve this transaction because it is the only available transaction,” he said.

Earlier this week, Barclays agreed to buy Lehman’s North American investment banking and capital markets businesses for about $1.75 billion after Lehman filed the largest U.S. bankruptcy case in history.

The deal was modified slightly in court on Friday, as lawyers for Lehman said the company’s trading accounts had shrunk and appraisals for its property values, including Lehman’s New York headquarters, had been less-than-expected.

The deal will save up to 10,000 jobs at Lehman Brothers U.S. unit, provide cash to fund operations while the rest of the company unwinds, and plans were underway to transfer customer accounts over the weekend.

Barclays has also said it could purchase more Lehman assets in other regions.

Lehman collapsed under the weight of toxic assets, mainly related to real estate, that are now worth only a fraction of their original prices.

NOT A PRECEDENT

The Lehman bankruptcy case is unprecedented in U.S. courts. With more than $600 billion in pre-petition assets, it dwarfs the second-largest U.S. bankruptcy, WorldCom, whose 2002 bankruptcy had assets over $100 billion.

People stand next to windows, above an animated sign, at the Lehman Brothers headquarters in New York September 16, 2008. REUTERS/Chip East

Peck said the case, in which the company’s core assets were sold in less than a week, should not be viewed as a precedent for other Chapter 11 bankruptcy cases, which typically proceed in a slower, more methodical fashion.

“This is the most momentous bankruptcy hearing I’ve ever sat through,” Peck said.

“It can never be deemed precedent for future cases. It’s hard for me to imagine a similar emergency,” he said.

Peck adjourned the courtroom to applause from the more than hundred people present.

In one of his last statements of the evening, he said “Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets and it saddens me,” Peck said.

Luc Despins, a lawyer for the creditors committee, said the creditors were not objecting to the sale, but not supporting it either.

“The reason we’re not objecting is really based on the lack of a viable alternative,” Despins said, adding that they did not support the transaction because there had not been enough time to properly review it.

However, the court hearing made clear that unwinding Lehman is a process that had only just begun.

CHALLENGES

Martin Flics, a lawyer for the joint administrators of the Lehman European Group told the court there may be challenges separating the two businesses which for many years “have for many years operated as one,” as they share various information technologies and client contracts.

Flics also asked Lehman’s chief operating officer about $8 billion in transfers made from the European business to the U.S. business made on the Friday before it went bankrupt.

PricewaterhouseCoopers, the UK administrator for Lehman, submitted a declaration to the court on Friday saying it felt the transfers were “potentially depriving them of billions of dollars in recoveries.”

Lehman’s lawyer Harvey Miller said that because administrators began the UK case prior to the U.S. Chapter 11 filing, the U.S. unit was unable to repay the sum.

Judge Peck said since the original deal had been modified so that $700 million in cash will no longer will be transferred to Barclays, the issue could be pursued at a later date.

Lawyers for Lehman brothers told the court that declines in the securities markets and collateral seizures from trading partners in the past few days had reduced the size of the deal.

In the revised deal, Barclays would absorb about $47.4 billion in securities and assume $45.5 billion in trading liabilities, attorneys said. The original deal called for $72 billion in securities and $68 billion in trading liabilities.

Miller said the purchase price for the real estate components of the deal would be $1.29 billion, including $960 million for Lehman’s New York headquarters and $330 million for two New Jersey data centers.

Miller said Lehman’s original estimate valued its headquarters at $1.02 billion but an appraisal from CB Richard Ellis this week valued it at $900 million.

In other changes to the deal, Barclays will no longer purchase Lehman’s Eagle Energy unit. It will acquire entities known as Lehman Brothers Canada Inc, Lehman Brothers Sudamerica, Lehman Brothers Uruguay and its Private Investment Management business for high net-worth individuals.

Lehman, however, will retain $20 billion of securities assets in Lehman Brothers Inc that are not being transferred to Barclays, they said.