Barclays Said to Reach Deal to Purchase Lehman Securities Unit

Barclays Said to Reach Deal to Purchase Lehman Securities Unit

Sept. 16 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, struck a deal to acquire the U.S. trading and investment banking business of bankrupt Lehman Brothers Holdings Inc., a person with knowledge of the matter said.

Trading in Lehman shares was halted by the New York Stock Exchange at 3:04 p.m. Barclays's agreement to buy the Lehman units may be announced as soon as this evening, the person said, declining to be identified because the talks were private. The Wall Street Journal reported that Barclays would seek bankruptcy court approval for the deal at 5 p.m.

Barclays may use less than $2 billion of its own funds to buy Lehman's broker-dealer unit and get a cash injection from investors to help finance the business, a person familiar with the situation said earlier today. The London-based bank would take licenses, buildings and as many as 10,000 people who trade and underwrite securities and advise on acquisitions.

Lehman is selling off pieces of itself, including the brokerage and asset-management units, that weren't included yesterday 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.

``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 today. ``A cash deal would be likely to weaken Barclays' capital measures, a development we see as dangerous,'' said Chambers who has a ``sell'' rating on the stock.

Not Interested

Barclays fell 2.5 percent to 308 pence in London, 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.

There is no assurance that discussions with Lehman will lead to an agreement, Barclays said in a statement earlier today. It is not interested in Lehman's other units, the person familiar with the talks said.

Lehman is in discussions to sell its investment-management unit to private-equity bidders including Bain Capital LLC, Clayton Dubilier & Rice Inc. and Hellman & Friedman LLC, according to four people familiar with the negotiations. Lehman is 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.

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.

Strong Position

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.

Lehman was forced into bankruptcy after both Barclays and Bank of America Corp. walked away. Barclays may now try to buy assets without taking on liabilities.

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

Troubled Assets

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.

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.

``If they can pick up the assets at attractive prices, they are worth considering,'' said Alex Potter, a London-based analyst at Collins Stewart, who has a ``sell'' rating on the stock.

BLOOMBERG