Barclays Bought Lehman in `Riskiest Week of My Life,' CEO Says
June 22 (Bloomberg) -- David Barse, chief executive officer of Third Avenue Management LLC, talks about his strategy for investment in the debt of distressed companies. Barse speaks on Bloomberg Television's "In Business With Margaret Brennan." (This report is an excerpt. Source: Bloomberg)
Barclays Plc’s purchase of Lehman Brothers Holdings Inc.’s brokerage in the falling markets of September 2008 occurred in “the riskiest week of my life,” the U.K. bank’s chief executive said.
“Markets were collapsing,” Barclays Group Chief Executive John Varley told a federal judge today in Manhattan. “We needed to ensure there was a buffer between assets and liabilities. We needed to be able to look regulators in the eye and say the deal would be capital accretive.”
Varley is the second witness today in a U.S. Bankruptcy Court trial over Lehman’s claim that the U.K.’s third-biggest bank should pay it as much as $11 billion for an allegedly undisclosed “windfall” on the defunct brokerage. The deal was approved by Judge James Peck and closed a week after Lehman’s Sept. 15, 2008, bankruptcy, the biggest in U.S. history.
Earlier today, Barclays President Robert Diamond said the bank had qualms about acquiring Lehman’s brokerage after Bank of America Corp. balked at buying it.
“BofA walked away from an opportunity to do a deal with Lehman at some distressed price,” said Diamond, who runs Barclays’s corporate and investment banking operations. “But they paid $50 billion for Merrill Lynch. That created real concern for us. What had they seen?”
Diamond was responding to questions from Barclays’s lawyer David Boies about the bank’s concerns when it bought Lehman and why it sought to buffer itself from risk by staking claim to assets in the brokerage business.
Risky Environment
“BofA could have bought it for about $1 billion,” Diamond said. “They walked away and paid $50 billion for Merrill. It reinforced in Varley and myself and our board what a risky environment we were working in.”
“When JPMorgan bought Bear Stearns it got government help,” Diamond said. “Barclays wasn’t able to get help. So it was especially important to get the values and commitments we had received or we couldn’t go forward. There were hours when we were expecting not to execute on the deal.”
Lehman, which wants money to pay off creditors, has accused the London-based bank of making a “secret” asset raid on Lehman that wasn’t disclosed to the court. The brokerage’s trustee, James Giddens, has said changes were secretly inserted in the sale contract without notice to him or Lehman’s lawyers. He wants $6.7 billion from Barclays to pay hedge funds and other institutional clients of Lehman.
Lehman’s lawyers are beginning to wrap up their case after more than two weeks of testimony by former Lehman executives, advisers and Barclays officials.
Key Facts
The U.K. bank’s lawyers have tried to show when questioning Lehman’s witnesses that all the key facts of the deal were known by the main players. They are scheduled to present Barclays’s side of the story starting Aug. 23. Barclays, which announced a gain on its purchase on Sept. 17, 2008, has said it owes Lehman nothing and wants $3 billion that is being withheld by the trustee.
Lehman spent $794 million on lawyers, advisers and managers in 19 months through April, with $277.4 million going to Lehman CEO Bryan Marsal’s restructuring firm, Alvarez & Marsal. Marsal has said he will spend five years selling assets to pay unsecured creditors as little as 14.7 cents on the dollar. Any proceeds from litigation would add to the payout.
The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Linda Sandler in U.S. Bankruptcy Court in New York at lsandler@bloomberg.net.
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