Bob Diamond, president of Barclays, had to sneak into the Lehman Brothers building through the garage to avoid the TV crews while negotiating to buy the bank the weekend before it failed, according to the report on Lehman by Anton Valukas, court-appointed examiner of the ex-Wall Street bank.
Along with worrying details of regulatory non-intervention and suggestions of who might be targeted by lawsuits the report contains a fascinating potted history of Barclays efforts to buy Lehman.
Barclays’ interest started in April, five months before Lehman failed, when a Treasury official called Diamond and asked if he might be interested in buying a dud investment bank Lehman.
The board of Barclays, under the code-name Baltimore, started looking at Lehman, dubbed “Long Island”. As an aside, the code-names were accidentally left in the hastily-written press release (which stunningly managed to mis-spell Lehman!) announcing the purchase of Lehman’s US broker-dealer after Lehman went bust.
Anyway, Barclays then had a long series of discussions with Hank Paulson, then Treasury secretary, and Tim Geithner, then head of the New York Fed and now Treasury secretary, but avoided talking to Dick Fuld, Lehman’s chief executive, for as long as they could.
According to Diamond, he resisted because he believed the only way Barclays would pursue an acquisition of Lehman was at a distressed price, “and at a distressed price this is a rescue and you are not going to want Dick Fuld there.”
On Friday September 12 the Barclays board considered “two acquisition scenarios, both involving transactions for $5 per share of Lehman stock”, and authorised due diligence for a potential deal.
Diamond and Fuld met face‐to‐face on Friday morning, September 12. In order to avoid the TV cameras that were stationed outside Lehman’s Manhattan headquarters, Fuld sent his driver to pick up Diamond and take him into Lehman’s building through the garage.
That day shares in Lehman plunged 42 per cent to $4.22, so the Barclays’ potential price actually looked over-generous, but Diamond was negotiating hard.
Diamond explained to Fuld that there could be “no deal at… the current market price, because of the risk and because of the overlap [between Barclays and Lehman],” but that Barclays had “an interest if this is a rescue situation, meaning if this is a very, very distressed price.”
Barclays got a shock once it started the due diligence, though. It had to up its estimate of write-downs from $7.5bn to $23bn-$27bn, in part because Lehman used more aggressive valuations than Barclays (something likely to surprise those who had been worried about the valuations on Barclays’ books).
Over the weekend, they still managed to reach a provisional agreement, with Barclays taking what were described as “good” assets and leaving the “bad” private equity and commercial real estate businesses to a shell backed by a consortium of Wall Street firms.
Unfortunately, the report does not go into why this failed, which could have resolved the transatlantic blame game started when Paulson, in his memoirs, accused Britain of blocking the deal. It also fails to publish the full provisional acquisition agreement, which would have allowed outsiders to assess whether it was any good or not – a key question for investors now as they have to decide whether to back Barclays’ management in its plans to buy a US retail bank.
Still, Valukas plans to make all the documents available eventually. Watch out for “Acquisition Agreement [Draft] [STB‐LEH 0001518]” in the 350bn (yes, billion) pages collected by Valukas.
Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.
Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.
How Barclays tried to sneak in the back door to buy Lehman
Bob Diamond, president of Barclays, had to sneak into the Lehman Brothers building through the garage to avoid the TV crews while negotiating to buy the bank the weekend before it failed, according to the report on Lehman by Anton Valukas, court-appointed examiner of the ex-Wall Street bank.
Along with worrying details of regulatory non-intervention and suggestions of who might be targeted by lawsuits the report contains a fascinating potted history of Barclays efforts to buy Lehman.
Barclays’ interest started in April, five months before Lehman failed, when a Treasury official called Diamond and asked if he might be interested in buying a dud investment bank Lehman.
The board of Barclays, under the code-name Baltimore, started looking at Lehman, dubbed “Long Island”. As an aside, the code-names were accidentally left in the hastily-written press release (which stunningly managed to mis-spell Lehman!) announcing the purchase of Lehman’s US broker-dealer after Lehman went bust.
Anyway, Barclays then had a long series of discussions with Hank Paulson, then Treasury secretary, and Tim Geithner, then head of the New York Fed and now Treasury secretary, but avoided talking to Dick Fuld, Lehman’s chief executive, for as long as they could.
On Friday September 12 the Barclays board considered “two acquisition scenarios, both involving transactions for $5 per share of Lehman stock”, and authorised due diligence for a potential deal.
That day shares in Lehman plunged 42 per cent to $4.22, so the Barclays’ potential price actually looked over-generous, but Diamond was negotiating hard.
Barclays got a shock once it started the due diligence, though. It had to up its estimate of write-downs from $7.5bn to $23bn-$27bn, in part because Lehman used more aggressive valuations than Barclays (something likely to surprise those who had been worried about the valuations on Barclays’ books).
Over the weekend, they still managed to reach a provisional agreement, with Barclays taking what were described as “good” assets and leaving the “bad” private equity and commercial real estate businesses to a shell backed by a consortium of Wall Street firms.
Unfortunately, the report does not go into why this failed, which could have resolved the transatlantic blame game started when Paulson, in his memoirs, accused Britain of blocking the deal. It also fails to publish the full provisional acquisition agreement, which would have allowed outsiders to assess whether it was any good or not – a key question for investors now as they have to decide whether to back Barclays’ management in its plans to buy a US retail bank.
Still, Valukas plans to make all the documents available eventually. Watch out for “Acquisition Agreement [Draft] [STB‐LEH 0001518]” in the 350bn (yes, billion) pages collected by Valukas.