Barclays buys Lehman assets

After initially refusing to buy all of Lehman, Barclays bank has agreed to pay US$1.75 billion for some of the Lehman's US assets.

A Barclays bank in London.

LONDON // Barclays has agreed to pay about US$1.75 billion (Dh6.4 billion) for some of the Lehman's prime US assets following its bankruptcy immediately transforming the British finance house into the world's third largest investment bank. The deal comes after a weekend when Barclays refused to buy all of Lehman. Most of the price tag was accounted for by Lehman's New York headquarters and two data centres. The bank will pay just $250m in cash for Lehman's North American investment banking and capital markets businesses.

The operations include fixed income and equities sales, trading and research, and investment banking, giving Barclays a major US investment banking presence and helping its president Bob Diamond realise his ambition to take on Wall Street investment banks on their own turf. The deal unites two big debt trading houses and could staunch the flow of customers fleeing Lehman in the wake of the largest bankruptcy in US history.

The Lehman operations have about 10,000 employees, estimated trading assets of $72bn, and $68bn in liabilities. The businesses will be merged into Barclays Capital, which is headed by Mr Diamond, a former executive of Credit Suisse First Boston and Morgan Stanley. "This is a once in a lifetime opportunity for Barclays," Mr Diamond said. It will announce further details of the expected issue of new shares in due course, it said.

The deal needs to be approved by the US bankruptcy court in New York and can be terminated if it is not completed by Sept 24. Lehman is filing an emergency motion to seek an approval. Not everyone was happy about the prospect, however. Before the official announcement, one of Barclays' top 15 investors, who declined to be named, questioned the merit of pursuing Lehman in the current climate. "Does Barclays not have better things to do with its capital? I don't think it's an environment for banking people to be brave," he said.

Barclays was involved in frantic talks over the weekend to rescue Lehman, but quit after US authorities would not guarantee the US investment bank's trading obligations. That prompted Lehman's New York-based holding company to file for Chapter 11 bankruptcy protection, sending shock waves through world financial markets as a yearlong credit crunch claimed another, bigger victim. Lehman's bankruptcy filing came as Merrill Lynch & Co agreed to be bought by Bank of America Corp and just months after the fire sale of Bear Stearns to JPMorgan Chase & Co The credit crisis will now leave just two of the top five Wall Street investment banks standing alone.

* Reuters