Even as Barclays agreed to buy Lehman Brothers businesses in North America, United States Federal Reserve has come with $85 billion package to resue insurance giant AIG. Fearing that the failure of AIG would cause financial crisis worldwide, Fed has agreed to reverse its position and give $85 billion which would give it the control of AIG. Only two weeks ago the Fed agreed to take control of US mortgage lenders Fannie Mae and Freddie Mac. The governemnt will have a 80% stake in the insurer. AIG is the largest insurer in the world with $1.1 trillion in assets and 74 million clients in 130 countries. Its fall would have had a much greater impact than that of Lehman Brothers. Fed is also expected to change the management at AIG.
Barclays Buys Lehman Assets
Britain’s third largest bank Barclays will buy the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion. This includes some where around 10,000 employees. While it will pay $250 million in cash for the Lehman Brothers businesses, $1.5 billion will be paid for Lehman Brothers New York Head Office and two data centers in New Jersey. These assets were not included in the Chapter 11 bankruptcy filings of Barclays.
The deal would propel Barclays straight into the big league of Wall Street banks. “This is a once in a lifetime opportunity for Barclays,” said Robert E Diamond Jr, Barclays President. The deal includes the equities and fixed-income sales, trading and research businesses, commodities and foreign exchange, merger advisory and prime brokerage units, Barclays said in a statement.
Barclays had raised £4.5 billion in a share sale in June this year. But the British bank has also suffered from credit crunch writing down $5 billion of assets in the first half of this year. The bank plans to raise at leat $1 billion more through subscription of shares to finance its deal with Lehman.
The acquired businesses will be merged into Barclays Capital, which forms part of Barclays Investment Banking and Investment Management. The acquired operations have trading assets currently estimated at $72 billion, and liabilities currently estimated to have a value of $68 billion. The deal would make Barclays a leading debt capital markets house globally. Deal will also strengthen Barclays through Lehman’s strong US M&A and equity capital markets franchises and also add to its hedge fund practice.