Barclays Buys Part of Lehman Brothers For Fire Sale Price Of $1.75B
After walking away from buying Lehman Brothers outright some 72 hours ago - a move that sealed the 158-year-old investment firm’s bankruptcy fate - British bank Barclays has now handpicked Lehman’s most desirable business segments, agreeing to purchase the investment banking and capital markets units for a fire sale price of $250 million in cash. Barclays also will buy up Lehman’s New York headquarters and two data centers in New Jersey for $1.5 billion.
Ironically, at the same time Barclays’ deal with Lehman came to fruition, the U.S. federal government was unveiling its plan to bail out ailing insurance giant American International Group (AIG) with an $85 billion loan. Three days ago, U.S. Treasury Secretary Henry Paulson was steadfast in his refusal to use taxpayer dollars for a rescue of Lehman Brothers.
The Fed’s decision is Barclays gain. Its $1.75 billion purchase includes businesses with trading assets estimated at more than $70 billion and trading liabilities of $68 billion. Reportedly, Barclays is considering a deal to buy additional parts of Lehman this week, including its prized investment management division.
For many people, Lehman Brothers’ journey into bankruptcy was not entirely unexpected. In recent years, Richard Fuld, Chairman and CEO, had made more and more bets on risky mortgage-backed securities. When the U.S. housing market began to crumble last summer, so too did Lehman. Having gambled nearly four times the firm’s shareholder equity on the mortgage securities, Fuld suddenly found himself - and Lehman - barely treading water. On Sept. 14, the nation’s fourth-largest U.S. investment bank was forced into bankruptcy.
For Lehman’s 25,000-plus employees, the final chapter of the venerable firm is especially painful. Not only will many lose their jobs, but they’ve witnessed their savings evaporate, as well, because a huge portion of their pay packages was tied to the firm’s stock - a decision orchestrated by Fuld.
On Sept. 25, the House Oversight and Government Reform Committee will hold a special hearing on Lehman Brothers, examining the regulatory mistakes and financial excesses leading to the company’s untimely bankruptcy. Fuld, who has received more than $465 million in compensation between the years of 1993 and 2007 - and who stands to take home millions more via an executive payout package - has been asked to testify.
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