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Barclays to Buy Lehman U.S. Units for $1.75 Billion

Published: 16 Sep 2008 18:46:00 PST

news_story_title>By Ben Livesey and Yalman Onaran

news_story_title> Sept. 17 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, will acquire the North American invest ment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, two days after abandoning plans to buy the entire firm.

news_story_title>Barclays is paying $250 million in cash for the Lehman businesses and $1.5 billion for the securities firm's New York headquarters and two data centers, the London-based bank said in a statement on its Web site today. The operations employ about 10,000 people.

news_story_title>Lehman is selling off pieces of itself that weren't included when the holding company filed the biggest Chapter 11 bankruptcy in history. Barclays President Robert Diamond said last month he wants the bank to take market share from Wall Street firms weakened by the credit crunch and break into the ``top tier'' of U.S. securities firms.

news_story_title>``While this could be a positive development for the long run, given the current market conditions, we are skeptical that the market is going to reward any deal,'' Derek Chambers, a London-based analyst at Standard & Poor's Equity Research Ltd., said in a note to investors.

news_story_title>The purchase includes the equities and fixed-income sales, trading and research businesses, commodities and foreign exchange, merger advisory and prime brokerage units, Barclays said.

news_story_title>Barclays fell 2.5 percent to 308 pence in London yesterday, valuing the bank at 25.1 billion pounds ($45 billion). That decline was smaller than the 3.9 percent drop in the eight- member FTSE 350 Banks Index.

news_story_title>New York Trip

news_story_title>Lehman is in discussions to sell its invest ment-manage ment unit to private-equity bidders Bain Capital LLC and Hellman & Friedman LLC, according to people familiar with the negotiations. The firm is also proceeding with an auction announced last week as part of Chief Executive Officer Richard Fuld's failed plan to save the 158-year-old firm.

news_story_title>Diamond was in New York last weekend as Lehman met with Wall Street executives to discuss a rescue plan. Lehman needed a bailout after Korea Development Bank pulled out of a plan to provide new capital and Lehman shares lost most of their value.

news_story_title>Barclays declined to bid for all of Lehman after three days of emergency negotiations involving the U.S. Treasury and Federal Reserve, Barclays spokesman Leigh Bruce said Sept. 14. Barclays couldn't get guarantees from the government to mitigate what it called Lehman's ``open-ended'' trading obligations.

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Bank of America Corp. also walked away from a possible Lehman acquisition over the weekend.

``Clearly Barclays's negotiating position is strong, which suggests a value-creating deal,'' said JPMorgan Cazenove Ltd. analysts in an e-mail note to clients before the deal was announced. ``Investors will want reassurance on the impact on Barclays's capital,'' said the analysts, who rate Barclays ``neutral.''

Barclays's so-called core equity Tier 1 capital ratio, a closely followed measure of a bank's ability to absorb losses and writedowns, rose to about 5.8 percent from 5.1 percent after it raised 4.5 billion pounds in a share sale in June. Barclays's ratio lags behind U.K. peers including HBOS Plc and Royal Bank of Scotland Group Plc.

CEO John Varley, 52, said in June that Barclays would use half the proceeds for growth, including acquisitions. Barclays sold shares to sovereign funds in Qatar, Singapore and China.

Lower Contribution

Barclays Capital, the bank's London-based securities arm, has 16,000 employees and contributes about 16 percent of Barclays's earnings, down from 39 percent a year ago. First-half pretax profit slumped 69 percent to 524 million pounds after the unit wrote down 2.8 billion pounds of subprime and Alt-A mortgages and other assets damaged by the credit turmoil.

Barclays's highest priority is to sell or liquidate troubled assets, Diamond said Aug. 7.

Lehman ranked No. 7 in global equity underwriting this year, according to data compiled by Bloomberg. Barclays, which wasn't listed among the top 25 on the list, could also use Lehman to increase its share of bond underwriting in the U.S. and add mergers and acquisitions advice worldwide.