Barclays Plc, the U.K.’s third- biggest bank, may buy parts of Lehman Brothers Holdings Inc.’s European investment bank after agreeing to acquire the bankrupt securities firm’s North American business for $1.75 billion.
Barclays plans to purchase Lehman’s investment banking, fixed-income and equities sales, trading and research divisions in North America, which employ about 10,000 people, plus the company’s headquarters in New York and two data centers. The London-based bank also is in talks to take over parts of Lehman’s equities business in Europe and may hire some of its employees in Asia, Barclays President Robert Diamond said today.
Lehman, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of hedge fund Long-Term Capital Management a decade ago, filed for bankruptcy protection on Sept. 15 after record losses in the mortgage market. Diamond, who abandoned talks to buy all of Lehman less than 24 hours before it collapsed, said less than 5 percent of the assets Barclays is buying are mortgage related.
“Diamond has struck an interesting deal, but to make this work he will have to be flexible with Barclays’s balance sheet,” said Julian Chillingworth, chief investment officer at Rathbone Brothers Plc, which owns Barclays shares.
Barclays rose 3.2 percent to 317.75 pence in London trading, valuing the company at 25.9 billion pounds ($46.2 billion). The shares outperformed the 69-member Bloomberg Banks and Financial Services Index, which fell 6.9 percent.
Selling Off Pieces Nomura Holdings Inc., Japan’s biggest securities firm, is also interested in parts of the European unit, a person familiar with the situation said. Officials at Nomura declined to comment.
Lehman is selling off pieces that weren’t included in the holding company’s bankruptcy filing. The company also is in discussions to sell its investment-management unit to private- equity bidders Bain Capital LLC and Hellman & Friedman LLC, people familiar with the negotiations said earlier this week.
Barclays will pay $250 million in cash for Lehman’s North American operations and $1.5 billion for the real estate, the company said in the statement. The bank plans to raise at least 600 million pounds in a stock sale to help fund the deal and has “opportunities” to buy other Lehman pieces, Varley said.
Diamond is more interested in boosting the bank’s equity and advisory units in Europe, where Barclays Capital has the “weakest position,” than expanding in Asia, Diamond said. Barclays Capital boosted its emerging-markets arm with 40 hires from ABN Amro Holding NV this year.
Ratings Review The bank may have its long-tem debt rating cut by Standard & Poor’s Ratings Services following the acquisition, London- based analysts said in a statement today. Barclays’s long-term AA-/A-1+ credit rating was placed on review “with negative implications” by the analysts who said the acquisition “increases potential earnings volatility.” Barclays is also weighs buying parts of Lehman’s European equities units.
“The money they are raising may allay concerns that they may not have had enough capital to do this deal,” said Leigh Goodwin, a London-based analyst at Fox Pitt Kelton Ltd.
Lehman Chief Executive Officer Richard Fuld said in a statement that the deal with Barclays “is a wonderful outcome for a great number of our employees.” Lehman employed about 25,000 people before it unraveled.
The purchase price for the Lehman assets is on par with the market value of Sanders Morris Harris Group Inc., a Houston, Texas-based brokerage with 617 workers, and is less than a third of the value of KBW Inc., a New York-based firm that employs 529.
Market Share Diamond, 57, said last month that he wants Barclays to take market share from Wall Street firms weakened by the credit crunch and break into the “top tier” of U.S. securities firms. The North American unit will add to Barclays profit as early as next year, CEO John Varley, 52, told analysts.
Lehman slipped to seventh in advising on mergers and acquisitions involving U.S. companies this year from fifth in 2007, according to data compiled by Bloomberg. Barclays ranks 35th in that market.
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.
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.
Core Equity 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.
Varley said in June that Barclays would use some of the proceeds for acquisitions. The deal with Lehman, which requires legal and regulatory approvals, “accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders,” Varley said in yesterday’s statement.
Barclays Capital, the bank’s London-based securities arm, has 16,000 employees and accounted for about 16 percent of Barclays’s first-half earnings, down from 39 percent a year ago.
Credit Suisse Group AG, Deutsche Bank AG and JP Morgan Cazenove Ltd. advised Barclays on the purchase from Lehman.
