Barclays may acquire more of Lehman

Thursday September 18, 2008

LONDON (AP) - Barclays PLC said Wednesday it may pick up some of Lehman Brothers assets and employees in Europe and Asia, on top of the British bank's deal to acquire key U.S. operations from the failed investment bank.

"Options, not obligations,'' Group Chief Executive John Varley said of the possibility of salvaging more of Lehman Brothers businesses.

Barclays PLC, the third-largest British bank, took advantage of Lehman Brothers Holdings Inc.'s bankruptcy reorganization to reach a deal on Tuesday for Lehman's North American investment banking and trading operations for just $250 million.

Barclays also picked up Lehman's New York headquarters and two data centers in New Jersey for $1.5 billion, all subject to court and regulatory approval.

Barclays President Robert D. Diamond Jr. said in a conference call with analysts that Barclays' interest was primarily in the U.S. cash equities business, as part of the company's goal to boost its earnings from North America.

"It's an absolute machine, it's extremely profitable,'' Diamond said.

"We wouldn't want to miss the opportunity to add some of the talent from the U.K. and Europe to the team,'' Diamond added.

"It would most typically be where Lehman has a strong position and BarCap (Barclays Capital) a weak position.''

The two executives also indicated a possible interest in some assets in Asia.

In a statement earlier Wednesday to the London Stock Exchange, Barclays confirmed the deal and said that some of its shareholders had expressed interest in subscribing to at least $1 billion of additional equity in support of the acquisition and to beef up Barclays capital base.

"The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America,'' Varley was quoted in the statement as saying.

"This transaction delivers the strategic benefits of a combination with Lehman Brothers core franchise, whilst meeting Barclays strict financial criteria, and strengthening our capital ratios."

Meanwhile PriceWaterhouseCoopers, which is administering Lehman's assets in London, said staff there would receive their September pay packets - as long as they come into work.

As Lehman works to close the sale of U.S. assets, a bankruptcy judge in New York on Wednesday gave Lehman Brothers initial approval to sell key North American businesses to Barclays Capital Inc. for $1.7 billion in cash.

The approval came just two days after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.

The judge's approval sets in motion the asset sales but leaves open the possibility of a competing bid. Lehman plans to seek final court approval Friday.

Barclays said Tuesday that it would buy Lehman's investment banking and capital markets businesses for $250 million in cash, as well as Lehman's New York headquarters and two data centers in New Jersey for an additional $1.5 billion.

Lawyers for creditors and bondholders objected to the speed of the process, saying two days was not enough time to evaluate the deal much less put together a competing bid.
But Judge James Peck declined to delay the approval of the bidding process and said, "There is effectively one logical purchaser for these assets."

Lawyers for the Federal Reserve Bank of New York, the Securities and Exchange Commission and JPMorgan - which believes it could be the company's biggest creditor - supported the sale effort.

The judge also approved Lehman Brothers' request for a $100 million breakup fee plus $25 million in expenses to be paid to Barclays if the deal fails and a competitor wins out.

Lehman said it has made a list of 200 employees it said were "key'' to the business and another eight were determined to be "critical'' to its success.

It said the retention of a majority of those employees was part of the agreement.

Under the proposed deal, Barclays would continue to employ about 10,000 Lehman employees based in the U.S. for 90 days, or pay them severance equal to what was promised by Lehman.

Lehman estimated that such severance payments would cost Barclays about $2.5 billion.
Barclays would also pick up Lehman contracts, some of which would be transferred when the deal closes and a second group that could move to Barclays within 60 days.

Lehman also said in court filings that it was putting up its once-prized investment management unit, Neuberger Berman Holdings LLC, as collateral for a $450 million loan to fund operations while in bankruptcy.

Barclays shares closed up 3.7 percent in trading on the London Stock Exchange at 317.75 pence ($5.74).


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