Lehman's Rescue and Barclays' Reversal

Only a few days ago Lehman Brothers employees were clearing out their desks and saying tearful goodbyes to their colleagues and associates across the street. But in an odd twist of fate, yesterday, Barclays plc agreed to buy Lehman's U.S. brokerage unit for $1.47 billion.The U.K. bank is said to be purchasing Lehman's equity and fixed-income trading operations, its New York headquarters building and two data centers. Barclays is also gaining Lehman's people, technology, brand name and clients - if it moves quickly enough to retain them.

Of course this is a good deal for Barclays, which was the leading candidate to acquire Lehman over the weekend before it was forced to declare bankruptcy on Monday. But Barclays walked away from the negotiating table when the U.S. Treasury and the Federal Reserve refused to bailout Lehman and backstop any losses that any buyer was destined to incur from the firm's toxic mortgage portfolio. Also, Barclays is paying $1.47 billion - by comparison the stock market value was $45 billion in early 2007, according to the Wall Street Journal.

But once Lehman filed for Chapter 11, this cleared the way for Barclays or another firm to purchase the good assets and leave the bad ones behind. Apparently, Barclays is buying Lehman's securities business and is not taking any of the risky commercial real estate and mortgage assets that scared it away the first time.

What is Barclay's buying? On the equity side, Lehman has very advanced trading technology on its desk including: a suite of algorithmic trading strategies, LX, one of the top five dark liquidity pools, and RealTick, an execution management platform with direct-access to multiple asset classes. Lehman also has a world-class fixed-income trading business. In a recent Greenwich Associates study ranking the performance of brokers during the credit crisis, institutions voted Lehman and JP Morgan as the top two brokers who supported them when others were unwilling.

This is a huge reprieve for thousands of Lehman employees that were losing their jobs and heading into an industry that is shrinking by the day. Barclays expects to retain about 9,000 to 10,000, according to media reports. While this doesn't cover everybody, it does give many employees a second chance to rebuild the franchise under Barclays.

And while Lehman's rescue is probably the first good news the industry has had all week, it also has been a rollercoaster week for traders that deal with Lehman in the markets. When I spoke to Neil Decker, director of fixed income trading at CAPIS, an institutional agency broker, he was emotional. "Lehman Brothers has been a well respected organization by everybody across Wall Street, particularly in the fixed income world. It's really sad to see them go," said Decker.

Then Decker asked me to: "Put in a good word for the folks that are there that have been counterparties for years and have done a good quality job in fixed income. As far as a personal wish, I hope someone out there at the firm level has the foresight to pick the whole firm up and go there with them." I guess Neil's wish has come true.This is a huge reprieve for thousands of Lehman employees that were losing their jobs and heading into an industry that is shrinking by the day. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio