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Barclays wants Lehman rump

Robert Peston | 08:09 UK time, Tuesday, 16 September 2008

Barclays has decided to try to "buy" the core of Lehman, its US broker-dealer business and its mergers-and-acquisitions team.

The best way of seeing this is not as a purchase of assets. Barclays does not want either Lehman's toxic investments in the residential and commercial property markets, nor does it want to unwind its extant, unsettled transactions.

What it wants is the 8,000 to 10,000 US employees which it sees as formidable profit generators.

But the value of these employees' relationships with clients is withering by the hour.

So if Barclays is to pick them up out of insolvency, it has to move fast.

If a deal is done, it'll be completed in hours.

As for the 5,000 Lehman staff in London, the outlook for them remains gloomy - since, as of now, it's unlikely Barclays will hire them (though that could change).

The big question for Barclays' shareholders is whether the bank will need to raise new capital to fund this deal. I wouldn't rule it out.

But history shows that the biggest investment gains are made by those who buy when all around are panicking that the end is nigh, when markets are close to bottom.

So if Barclays picks up the rump of Lehman, it may look very smart a few years from now.

Comments

  • Comment number 1.

    Smart move by Barclays ... cherry picking from the rubble left after the Lehman implosion is good long term thinking ... and also might hopefully save a few jobs for Lehman employees who have had the career blown out of the water.

  • Comment number 2.

    Let me understand this; Barclays wants to buy the staff of Lehman.

    Was it not these staff who generated the toxic investment deals - so Barclays wants to buy staff that destroyed Lehman.

    In the mad world of international banking I suppose this must make sense, but I still fail to understand it.

    You pick up some clients through the contacts list of the staff, but don't the contacts legally belong to Lehman not the staff?

  • Comment number 3.

    THE WORLD HAS GONE MAD!

    They are clearly banking (sic) on a return to the good ol' days of greed and the worship of capital (some time soon!) in order to make yet more money by just sitting on their backsides!

    WE WILL LEARN NOTHING FROM THIS CATASTROPHE?

    Unfortunately the UK ex-employees seem surplus to requirements.

    Granted that Barclays may be trying to help out a few thousand ex-employees over in the Sates (though I doubt that any of them will go hungry or lose the roof from over their heads). This is patently not the primary reason.......Barclays obviously just see this as an opportunity to get a foothold in the US market....which they have not been able to do thus far (other than advertisements on Phil Mickelson's clothing).

  • Comment number 4.

    #2 - the assets of any liquidated company are under the control of the administrator. However, if Lehman is eventually liquidated, then the assets have been dissipated, whether by sale or by inertia.

    Barclays is playing smart. BoA has bought Merills for a full (possibly overfull) enterprise value, mainly for expanded clientele. If Barclays can pick the revenue generating assets (mostly people) in one fell swoop, then it can steady, rebrand and reposition that part of the LB business and then offer a wider portfolio of global services.

    Seems to me that Barclays by doing this will emulate Citi and HSBC as strong global players emerging from the present situation.

    Once the 2008 banking results are announced in Feb 09, let's see how the major UK banks all look. I think it might be interesting.

  • Comment number 5.

    Why on earth would anyone want the "tainted" staff who caused this catastrophe in the first place?

    I don't mean the back office staff, the average salaried clerical workers, who don't deserve to be made redundant.

    The "high flyers" should be left to live off their already fat ass-ets for a while! Following this, they would be better training as farmers or mechanics, as they clearly aren't great at mathematics!

    Liars and confidence tricksters will only bring their "snake oil" tactics with them!

  • Comment number 6.

    This is excellent thinking from many stand points.

    1. Barclays has a war chest from the ABN Amro debacle.

    2. The banking sector moves in cycles and this is the time to acquire.

    3 Saving the jobs and careers of Lehman's employees will guarantee a high degree of company loyalty to Barclays which is a long term gain due to the recruitment merry-go-round that occurs in banking

  • Comment number 7.

    the great thing for those Lehman Brothers traders who helped put their company in this position is that none of this will really affect them, flush with cash and assets as they are.

  • Comment number 8.

    Who signed off Lehmans audit last time? Whoever did signed off on a going concern, I presume. If they understood the risks, they should be putting 'fundamental uncertainty' or the equivalent paragraphs in the audit report, doubt that they did. Whos going to sign all the banks off this year? Could be another Enron style fallout for someone on top of the immediate effects

  • Comment number 9.

    Utterly incredible. Barclays have a severe and strict head count freeze, denying managers the ability to hire essential, sometimes even simply clerical staff.

    Yet here we see a sudden willingness to take on the burden of 10,000 extra staff, by a bank who's own HR dep't is creaking as it is.

    If the board devote months of effort to trimming staff, avoiding hiring, forcing managers to work 60 hour weeks to get stuff done, how come on an apparent whim, they can decide carte-blanche to do something like this?

    Do they really think they don't lose an immense amount of loyalty and respect when staff watch this unfolding?



  • Comment number 10.

    So it has taken Lehmans to put the bank in bankrupt.

    I think I detect a rotten smell about this though.

    As I understand it there was a deal on the table from Barclays to take Lehmans over as a going concern. The breaker of this deal is said to have been that the US government would not provide certain garuantees in resect of existing liabilitities of this US based global corporation to a UK based global corporation.

    Would those garuantees have been forthcoming (as they have been on several occasions in the recent past) if the knight-in-shining-armour had had the stars and stripes on its lance instead of the union flag?

    As far as Barclay's behaviour now, it is just what anyone would do. Go to the fire sale and see if there are any bargains to be had.

  • Comment number 11.

    As a layman in banking terms, it always seemed to me that in banking , and indeed in financial centres, the keyword was 'prudence'. That and 'caution' were the bywords. Why did all that go out of the window both here and in the USA over recent years, such that they and their actuaries and accountants got themselves in such a mess. Why did they have to take so many risks in lending, investments etc? It looks to me, poor man in the street, as if all duty of care went out the window.

  • Comment number 12.

    #2: Barclays allegedly wants to acquire the staff who were profit-generating, not those who set up the toxic deals.

    LB is (was) a big organisation with many divisions. Your position is akin to writing you off as a villain because your sister-in-law (or whoever) gets done for shoplifting.

  • Comment number 13.

    The cultures of Barclays and Lehman are probably very different and Barclays would do well to remember that their 'assets' walk out every evening. Once the markets stabilise many of the very capable at Lehman will look elsewhere leaving Barclays with the not so capable and coming second is a loser in Investment Banking.

    All the Lehman people will need Barclays for is capital for underwriting their deals and funding their remuneration.

  • Comment number 14.

    We (in the UK)should adopt a more positive outlook on this. The US banks have deservedly got their fingers seriously burnt on what at the route is fraud on a grand scale (sub prime mortgages sold on terms which would inevitably default). Our banks are not the real bad guys in this episode, if the boot was on the other foot you can bet your life the Americans would be scaveging over the carcus picking up assets well below market value, so that when things turnaround, and they will, they would be in the best position to benefit. I say lets go on a corporate raid of America with the Sovereign wealth funds backing us up.

  • Comment number 15.

    Interesting Robert. As I understand it Barclays was one of those financial institutions being courted to save Lehman. Quite shrewd that they should realise there's more to be had from the bones than the meat.

  • Comment number 16.

    Its good to hear Robert Peston talking up a bank.

    Over the weekend I was worried that Barclays might have been involved in saving Lehman's in order to cover an exposed position ("if they go down, then so do we").

    So it is heartening to be told that they are looking for new talent. This suggests that they can afford to do so, and that they are looking to future profit rather than struggling to survive the present crisis.

  • Comment number 17.

    I went half way to qualifying as a broker in Canada to supplement my knowledge working on investment systems in Information Technology.

    What struck me immediately then 35 years ago, and I have never changed my mind, is that buying and selling securities with only a short term horizon is gambling pure and simple. If I picked up correctly yesterday what I believe John McCain is reported to have said, Wall Street is a casino. That is correct of course, but of all the stock exchanges.

    The futures market is another form of similar abuse by virtue of which new ways to invent virtual wealth rather than real added value have been created, unless it is used merely for commodities traders legitimately to smooth over the ups and downs over the market in the medium term. Instead, it has been used by companies such as Lehman's to line their pockets even more.

    Getting back to the basics of the sub-prime mortgage market, how can it make sense to invest in borrowers with properties who cannot afford to pay? Just look at all the banks worldwide who have succumbed to this greed.

    For every winner on the stock market there has to be a loser. The answers are tough rules on when trades are to be regarded as legitimate, every trade over a certain value being subject to checking by other independent trading regulators before they are approved and allowed and finally worldwide regulation, very tough regulation - not the kind the of complacency we had in Britain when the FSA failed to do their job properly with Equitable Life for more than ten years.

    It is time we went back to mortgages limited to 70%. Not only would borrowers be more able to pay then, that would drive down property prices to more sensible and realistic levels.

    Nobody should expect to live beyond their means and expect to get away with it.

  • Comment number 18.

    #13: if Barclays are at all smart about it, they'll make their offer conditional upon cast-iron service contract tie-ins from the LB staff. In the current climate, I'd be surprised if the LB staff wouldn't concede that in return for continuation.

  • Comment number 19.

    Re #4 and #12

    Chapter 11 allows the organisation to continue to trade and thus its assets, in this case its client list, are still the property of Lehman. So buying the staff is a legally dubious way of getting at the client list.

    On the toxicity of Lehman: granted, Lehman is/was a large organisation with many divisions, but without very careful research, not the kind of research that can be done quickly, picking the good form the bad is chancy. Particularly given the legal situation of Lehman's client list (see above paragraph.)

    Barclays may be able to negotiate with Lehman (in Chapter 11) to take over valuable divisions, but to try to grab staff is probably leaving itself open to legal action from Lehman (in Chapter 11)

  • Comment number 20.

    "What it wants is the 8,000 to 10,000 US employees which it sees as formidable profit generators."

    Oh, Robert, and people say the Americans don't 'get' irony !!! Truly hilarious, if it wasn't so terrifyingly serious !!!

    Have we learnt nothing from this debacle ??

    Isn't the whole point of this exercise to teach us, if we don't know before, that the 'Sage of Omaha' was right when he referred to the 'derivatives market' as 'Weapons of [financial] Mass Destruction' ??

    Do we STILL not realise that the 'profits' made by Lehman are just Virtual Voodoo Vapour that, cancelled out by the vast liabilities which can be written by these contracts, and have disappeared like the morning fog evaporating in the sunshine ??

    Surreal and unbelievable... - If you are in a pit, the first thing to do is to 'stop digging' - not buy in another army of shovellers..

  • Comment number 21.

    Ho ho - nice one, Barclays! They've done to Lehman exactly what Shanghai Motors did to MG Rover. Detailed talks to buy the company to save it from administration, so you find out all the details; stand back and wait for the collapse, then step in and buy the good bits cheap.

  • Comment number 22.

    With more big fish struggling now might not be the time to fill the keep net. Not even Barclays have unlimited resources. Anyway the key issue here is is does the purchase of a once great player always strengthen the team. I would resent throwing down the red carpet to those that allowed Lehmans to fail if i had kept my company solvent. A few stars do not a great team make.

  • Comment number 23.

    So we have the second coming of BZW by another name, 10 years after the first one was broken up. Not convinced it was a resounding success first time around.

  • Comment number 24.

    DEVALUATION OF CURRENCY IS THE NEXT STAGE OF THE CREDIT CRUNCH.

  • Comment number 25.

    #9 - I would suggest that if Barclays are being 'prudent' it's to protect their market position, rather than to work their managers to an early grave, as you seem to infer.

    Great move by Barclays - all the best terms of the deal they originally wanted, at a knock down price.

    Good news for staff in the US, not so good for those in the UK (it would seem).

    Robert - good to read you giving credit where it's due.

    S.

  • Comment number 26.

    Poor old Barclays gathering up her skirts at the last. 10,000 Americans will be 9,999 too many. Anyway, they already have one - dear old Bob D - quite enough for any patrician Uk bank ! Not a chance of making this work. Remember Big Bang and BZW?

  • Comment number 27.

    Hi Robert
    Sit tight on your assets and keep smiling!!
    new triedf

  • Comment number 28.

    If Justice exists, what should be very busy in the next days, weeks, or even years is the Judiciary System of the United Staes and of the rest of developed countries... All this crisis is just the mask of deep financial crimes... Bankers, brokers and even government officials are all inviolved.. They are not stupid. This is not a dum matter but a very planned perverse issue... richer are ricer. poor are poorer...

  • Comment number 29.

    Justice, not more public debt is whta is necessary to recover confidence in the financial system...

 

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