Lehman Brothers UK staff thrown a lifeline by Barclays

Barclays president Bob Diamond said the focus of interest in the UK would be the equity and capital markets business

Lehman Brothers staff in the UK were thrown a lifeline today when Barclays said it might include some of the investment bank's London operations in a deal to buy its north American business.

John Varley, Barclays chief executive, said the bank had "opportunities but no obligation" to buy parts of Lehman outside the US.

"We have acquired assets in the US and we are now looking quickly and seriously to see what might fit with the businesses we have around the world," he said.

"Are we required to acquire other assets in this transaction? No. Are there people whose activities are complementary to the businesses we are buying? It is possible to contemplate that and [we are] looking at that."

Barclays agreed a $1.75bn (£980m) deal to buy the core business of Lehman Brothers, the investment bank that filed for bankruptcy on Monday amid one of Wall Street's worst crises.

The bank issued a statement at around 2am today in the UK confirming it would buy Lehman's North American investment banking and capital markets business. That saves around 10,000 jobs on Wall Street. Barclays said yesterday the deal secures about half the revenue stream of the old Lehman Brothers.

Bob Diamond, the Barclays president who led the negotiations, said the deal was a "once in a lifetime opportunity for Barclays". He said the focus of interest in the UK would be the equity and capital markets business. "We wouldn't want to miss the opportunity to add some talent from the UK and Europe."

Varley said Barclays had been considering a deal with Lehman for some months, as it became apparent the bank was heading for trouble.

The agreement makes Barclays one of the leading banks on Wall Street, with capabilities across equity and debt markets, mergers and acquisitions, commodities trading and foreign exchange. The businesses will be merged into Barclays Capital, though it is not clear whether the Lehman name, one of the oldest on Wall Street, will disappear in the short term.

The deal still needs to be approved by the bankruptcy court.

Barclays is paying $250m cash and taking on $72bn in trading assets and $68bn in trading liabilities. They include mortgage assets, equities, corporate debt, government bonds and commercial paper.

The bank gave further detail on the assets yesterday. It said less than 5% were mortgages, that these had been marked down and were further so during due diligence. Barclays said the assets and liabilities being acquired had been through "quite a cleansing process", adding it had been given the chance to pick and choose assets and had been doing due diligence since the weekend.

Barclays said the deal would enhance its capital ratio, rather than prove detrimental, and be earnings accretive. "We have tried to be very disciplined in the way we have managed our balance sheet and you should assume those disciplines remain in place," Varley said.

He underlined how important it had been to get the deal done quickly to prevent an exodus of staff and clients. 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. He said that, as far as he was aware, Barclays was the only bidder.

A deadline for completing the deal to buy the North American business has been set for a week today.

In addition, Barclays is paying $1.5bn for the Lehman headquarters, a glass and steel tower just north of Times Square in New York, and two data centres in New Jersey. The bank said the price represented the buildings' market values.

The agreement is being supported by certain "strategic" investors in the bank, who have agreed to subscribe to at least $1bn of new equity. Barclays did not name which investors would be supporting the deal, but Qatar Investment Authority, China Development Bank and Singapore's Temasek are among its large shareholders.

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.

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 told, in most cases, to go back home again.

Barclays has grown its investment banking division rapidly under Diamond's 10 years at the top. He was involved in disbanding the bank's last disastrous foray into global financial markets, BZW, and there have been some concerns the bank might repeat mistakes.

Barclays said the deal would give it a top three position in US capital markets. The firm said it would also extend Barclays Capital's range of investment banking products, with the addition of Lehman's strong M&A and equity capital markets franchises in the US. The deal will result in a significant lift to the amount of earnings from the US.

"We will now have the best team and most productive culture across the world's major financial markets, backed by the resources of an integrated universal bank," Diamond said.


David Teather in New York

The GuardianTramp

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