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Robert E. Diamond Jr. plan- Analysis on Barclays PLC and Lehman Brothers deal!

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 17, 2008

Barclays snaps up Lehman Brothers for $1.75 billion??? They should have waited. But not a bad deal at all for Barclays makes them look good for saving part of Lehman’s, and they avoid the risk exposure. Remember guys these where the same people who last year failed to buy ABN Amro for $80Bln. They were lucky. If they had acquired it last year they would be in Lehman’s position today.

Barclays finally agreed 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.

The Board of Barclays announces that Barclays has agreed, subject to US Court and relevant regulatory approvals, to acquire Lehman Brothers North American investment banking and capital markets operations and supporting infrastructure. The transaction will create a premier integrated global bulge bracket investment banking company with a leading presence in all major markets and across all major lines of business including: equity capital markets, debt capital markets, mergers and acquisitions, commodities trading and foreign exchange.

MF Global on Barclays and Lehman Brothers deal

The deal makes very good sense financially. Barclays will book some USD3.6bn in negative goodwill and will issues some USD1.0 billion in equity. The terms and timing have not yet been communicated, but the issue is supported by Barclays’ shareholders.

We estimate that this transaction increases Barclays core tier 1 ratio by 50bp to 6.7% by year end 2008, assuming USD15bn in RWAs. On a more important note, we believe that Barclays received the green light from the regulators to pursue Lehman.

It also received the go ahead to make an acquisition in emerging markets and were able to substantially boost mortgage market share in the UK during H1 2008. Consequently, we believe the regulator is certain that Barclays is safe, otherwise it would not be allowed to do all three things in a time of crisis.

Keefe, Bruyette & Wood on Barclays and Lehman Brothers deal

Barclays has announced the purchase of Lehman Brothers’ North American investment banking and capital markets operations for £140m, together with property assets for around £0.8bn, taking the total consideration to c£1bn.

There will also be a £0.6bn share issue supported by ‘certain’ shareholders. We have to make a number of assumptions at this stage, but it looks to be around 24p accretive to 08E NAV and would add around 0.4% to the core capital ratio. There are, however, a number of unknowns, including the underlying quality of the assets being acquired and any associated restructuring charge.

Merrill Lynch on Barclays and Lehman Brothers deal

We think the near term impact is likely to be positively viewed. Barclays appears o have avoided buying any of the legacy assets in structured credit and commercial real estate, which was a concern over the weekend; it has paid a relatively low price to achieve a change in scale in its US operations; and the immediate capital impacts are positive.

In addition, the deal is likely to be accretive to earnings quite quickly, although we currently have no details on the earnings power of the businesses acquired.

Longer term, however, we think the market will question the strategic rationale of the deal, because it moves Barclays back in the direction on investment banking at a time when we had been expecting more of a focus on retail.

On our current 2009 numbers, Barcap represents 26% of profits, and 46% of RWAs. If we assume that the 10,000 new Lehman employees can produce the same level of net income per employee as the current 16,000 Barcap employees, it would take Barcap up to 37% of group profits.

Barclays PLC’ president, Robert E. Diamond Jr., was acting as though the deal was done. He addressed staff at Lehman in New York yesterday afternoon, telling them: “You have a new partner.”

Who is Robert E. Diamond Jr.?

President, Barclays PLC and CEO of Investment Banking and Investment Management (Board and Executive Committee member)

Bob Diamond is President of Barclays PLC and Chief Executive of Investment Banking and Investment Management, comprising Barclays Capital, Barclays Global Investors and Barclays Wealth. He is an Executive Director of the Boards of Barclays PLC and Barclays Bank PLC and has been a member of the Barclays Group Executive Committee since September 1997. Based in London, he joined the firm in summer 1996.

Bob was formerly Vice Chairman and Head of Global Fixed Income and Foreign Exchange at CS First Boston. Based in New York, he was a member of the Executive Board and Operating Committee of CS First Boston and a member of the Board of Credit Suisse Financial Products.

Bob joined CS First Boston in 1992. Based in Tokyo, he was Chairman, President and Chief Executive Officer of CS First Boston Pacific, responsible for Investment Banking, Equity, Fixed Income and Foreign Exchange for the Pacific region.

Previously, Bob was Managing Director and Head of European/Asian Fixed Income Trading for Morgan Stanley International, and was based in London for four years. He joined Morgan Stanley in 1979 as Director of Management Information Systems and became assistant to the Chief Financial Officer in 1980, spending 13 years with the firm.

Bob began his career as a lecturer at the School of Business, University of Connecticut from 1976-1977.

A native of Concord, Massachusetts, USA, Bob received a Bachelor of Arts degree in Economics from Colby College in Maine (1974), and an MBA from the University of Connecticut, where he ranked first in his class (1977); and was awarded Doctor of Humane Letters from the University of Connecticut in 2006.

His outside affiliations include:

* Trustee of Colby College, Waterville, Maine.
* Trustee of the American School in London.
* Member of the Advisory Board of the Judge Business School at Cambridge University.
* Chairman, Old Vic Productions, Plc
* Board Member, The Diamond Family Foundation
* Member of the Board of Directors, the Institute of International Finance
* Member of International Advisory Board, British-American Business Council

About Barclays

Barclays is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the USA, Africa and Asia.

With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs 147,000 people.

Barclays moves, lends, invests and protects money for over 42 million customers and clients worldwide.

For further information about Barclays, please visit our website http://www.barclays.com.

Barclays will acquire trading assets with a current estimated value of £40bn (US$72bn) and trading liabilities with a current estimated value of £38bn (US$68bn) for a cash consideration of £0.14bn (US$0.25bn). Barclays will also acquire the New York headquarters of Lehman Brothers as well as its two data centres at close to their current market value.

In response to this opportunity, certain Barclays shareholders have expressed support for the transaction and interest in increasing their shareholdings in Barclays. The Board of Barclays expects these discussions to lead to a subscription of at least £0.6bn (US$1bn) of additional equity. The proposed transaction with Lehman Brothers and the additional equity would result in an enhancement of Barclays earnings and capital ratios.

Commenting on this announcement, John Varley, Barclays Group Chief Executive, said:

“The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America. This transaction delivers the strategic benefits of a combination with Lehman Brothers core franchise, whilst meeting Barclays strict financial criteria, and strengthening our capital ratios.”

Robert E Diamond Jr, Barclays President, said:

“This is a once in a lifetime opportunity for Barclays. 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. We welcome the opportunity to add Lehman’s people and capabilities to the Barclays team.”

Herbert H McDade III, Lehman Brothers Chief Operating Officer, said:

“Lehman Brothers strength has always been our client franchise. With this transaction, we have the opportunity to continue the growth and development of our US investment banking and capital market franchises with one of the leading financial institutions in the world. Together with Barclays, these businesses will be a part of a global financial services powerhouse delivering a comprehensive suite of products and services to our clients.”

Quick thought: LEH bankruptcy should be a model for other financials and for the FED, Let the company go bankrupt … someone (Barclays) will buy the assets on the cheap, with the toxic waste written off. These companies are not liabilities of the FED nor the U.S. Taxpayer!

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