Barclays Plc, which over the weekend balked at acquiring stricken Lehman Brothers Holdings Inc, agreed to pay about $1.75 billion (1 billion pounds) for some of the bank's prime U.S. assets following its bankruptcy filing.
Most of the price tag was accounted for by Lehman's New York headquarters and two data centers, while the British bank will pay just $250 million in cash for Lehman's North American investment banking and capital markets businesses.
The operations include fixed income and equities sales, trading and research, and investment banking, giving Barclays a major U.S. investment banking presence and helping its president Bob Diamond realize his ambition to take on Wall Street investment banks on their own turf.
The deal, announced late on Tuesday, would unite two big debt trading houses and could staunch the flow of customers fleeing Lehman in the wake of the largest bankruptcy in U.S. history.
It comes after days of intense upheaval on Wall Street, which also saw the U.S. government agreeing late on Tuesday to rescue American International Group with an $85 billion loan from the Federal Reserve.
The Lehman operations to be acquired have about 10,000 employees, estimated trading assets of $72 billion (40 billion pounds), and $68 billion (38 billion pounds) in liabilities. The businesses will be merged into Barclays Capital, which is headed by Diamond, a former executive of Credit Suisse First Boston and Morgan Stanley.
'ONCE IN A LIFETIME'
"This is a once in a lifetime opportunity for Barclays," Diamond said.
Barclays said some of its shareholders had expressed interest in increasing their stakes in the bank as part of their support for the deal, and its board expects those discussions to lead to a subscription of at least $1 billion of additional equity.
It will announce further details of the expected issue of new shares in due course, it said.
The deal needs to be approved by the U.S. bankruptcy court in New York and can be terminated if it is not completed by Sept. 24. Lehman is filing an emergency motion to seek an approval.
Not everyone was happy about the prospect, however.
Before the official announcement, one of Barclays' top 15 investors, who declined to be named, questioned the merit of pursuing Lehman in the current climate.
"Does Barclays not have better things to do with its capital? I don't think it's an environment for banking people to be brave," he said.
Barclays was involved in frantic talks over the weekend to rescue Lehman, but quit after U.S. authorities would not guarantee the U.S. investment bank's trading obligations.
That prompted Lehman's New York-based holding company to file for Chapter 11 bankruptcy protection, sending shockwaves through world financial markets as a year-long credit crunch claimed another, bigger victim.
Lehman's bankruptcy filing came as Merrill Lynch & Co agreed to be bought by Bank of America Corp and just months after the fire sale of Bear Stearns to JPMorgan Chase & Co The credit crisis will now leave just two of the top five Wall Street investment banks standing alone.
PRIVATE EQUITY INTEREST
Barclays deal does not include Lehman's investment management division, which includes fund manager Neuberger Berman. On Monday, a person familiar with the situation said a sale of that unit was also close to being announced.
Private equity firms Bain Capital, Hellman & Friedman and Clayton, Dubilier and Rice have placed bids for the unit, the person said. Lehman had planned to sell a majority stake in the investment management unit before filing for bankruptcy, but is now selling the whole unit.
Barclays shares closed down 2.5 percent at 305.1 pence. The DJ Stoxx European bank index fell 4.3 percent.
Barclays Capital, Credit Suisse, Deutsche Bank and JPMorgan Cazenove Ltd advised Barclays. Clifford Chance LLP and Cleary Gottlieb Steen & Hamilton LLP were its legal advisers.
