Barclays to buy Lehman Brothers assets

· Bank returns for deal 48 hours after pulling out
· Bob Diamond tells staff: 'You have new partner'

Barclays was this morning on the brink of securing a deal to buy the core business of Lehman Brothers, the investment bank that filed for bankruptcy on Monday amid one of the worst financial crises that Wall Street has suffered.

While lawyers were still finalising details of the agreement, Barclays' president, Bob Diamond, was acting as though the deal was done. He addressed staff at Lehman in New York earlier this afternoon, telling them: "You have a new partner."

The agreement centres on the US investment banking business of Lehman, including equities, mergers and acquisitions and capital markets. It saves around 8,500 jobs and overnight makes Barclays one of the leading players on Wall Street.

The deal does not include the toxic property related investments that proved Lehman's downfall.

Neither, for now at least, does the agreement include Lehman's business in London, which was put into administration on Monday, although it is possible that Barclays could yet take a look.

Full details of the agreement were still not clear. The deal was being put before a New York bankruptcy court judge for approval and to Lehman's creditors before an official announcement could be made.

One banker who works in the Canary Wharf offices of Lehman said the Barclays deal had gotten a mixed reaction in London. "We're pleased for our colleagues but it makes people in London feel even more hung out to dry, particularly since they use this corporate slogan of having a 'one firm' culture," he said.

Barclays had confirmed this morning that it was back at the negotiating table. The news came less than 48 hours after Barclays had walked away from talks orchestrated by US officials to prevent Lehman falling into bankruptcy.

The failure of Lehman, the fourth-largest investment bank on Wall Street, together with the sale of Merrill Lynch to Bank of America, triggered a worldwide sell-off in the financial markets and shook faith in Wall Street.

Figures out yesterday showed hedge funds and other investors that had been shorting Lehman's stock since March had made $29bn from the firm's demise.

Lehman renewed contact with Barclays on Monday afternoon to see if it would still be interested in some of its assets. Diamond, who led the failed weekend negotiations to take control of Lehman, had remained in the US and worked through the night to hammer out an agreement.

Lehman was racing to sell off the investment bank before staff and clients began to leave in large numbers, eroding any residual value it might have. Staff have been clearing their desks and walking out with bags or cardboard boxes full of possessions since it became apparent on Sunday evening that the firm was finished.

Frustration at Lehman was growing yesterday, particularly over its chief executive, Richard Fuld, who had still to address workers directly. "We don't know what is going on," one Lehman banker said outside the firm's offices in midtown Manhattan. "Fuld hasn't said anything to us yet; we're all uncertain whether we have got jobs or not."

It remains far from clear that Barclays shareholders are ready to back further expansion of the bank's investment division, which has grown rapidly under Diamond's 10-year tenure. He was involved in disbanding the bank's last disastrous foray into global financial markets, BZW.

Diamond knows that if a deal requires Barclays to raise fresh funds from shareholders, the transaction will be subjected to even greater scrutiny. He has insisted that Barclays has the opportunity to become a top-four bank on Wall Street as ailing players fall by the wayside.

Barclays has sounded out shareholders about a possible cash call although only 13% of them backed its last funding when it raised £4bn, as well as £500m from new investors in Japan.

Barclays had walked away from the initial deal because the US government was not prepared to provide a guarantee for Lehman's liabilities.

Lehman listed assets of $639bn, making it the biggest bankruptcy filing ever, 10 times the size of the energy firm Enron when it went bust in late 2001.

The bank filed for Chapter 11 bankruptcy, which provides protection from creditors while it liquidates its business. The operations in the UK were put into administration and staff reacted with shock and anger as they turned up for work on Monday and were in most cases told to go back home again.

The frustration in New York was echoed in London today. Staff had been given a two-page Q&A sheet, but one banker said it contained considerably more questions than answers. "Senior management has been noticeable by a complete absence of information," he said.

The atmosphere in the office, he added, is "very informal, there's only a smattering of people around there at any time just hanging around, using the email or using the phones."

There was at least encouragement as expectations rose that this month's salaries would be paid.

Creditors from JP Morgan Chase and Credit Suisse to smaller investors such as Arapahoe County in Colorado rushed to file claims in the bankruptcy court. The business owed $613bn to creditors around the world. The unravelling of the business is expected to take months or possibly years.

One large asset owned by Lehman is its corporate headquarters on Seventh Avenue in New York, which the bank paid $650m for after it was forced out of downtown New York by the attacks of September 11 2001.

Fears began to grow for Lehman in March, after the near failure of Bear Stearns. But the business rapidly imploded just a week ago when it became clear that talks to secure capital from the Korea Development Bank had broken down.


David Teather and Andrew Clark in New York and Jill Treanor

The GuardianTramp

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