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Barclays Adviser on Lehman Deal Got $10 Million Fee

Michael Klein, Citigroup Inc.’s former investment banking chairman, said he was paid $10 million to advise Barclays Plc on its purchase of Lehman Brothers Holdings Inc.’s brokerage business in the 2008 credit crisis.

Klein disclosed the fee today in U.S. Bankruptcy Court in Manhattan during a trial to determine whether Barclays should pay as much as $11 billion for realizing an allegedly undisclosed “windfall” on the deal. Barclays took over the brokerage a week after Lehman filed the biggest U.S. bankruptcy.

The business had no identifiable “ongoing value” when Barclays bought it, Klein testified. He mentioned television pictures of people flooding out of Lehman’s New York headquarters and a “cascade” of asset sales out of the brokerage, which he said cast doubt on the potential value of the acquisition for London-based Barclays.

“It wasn’t clear what the clients’ response would be to the bankruptcy, or what businesses would be there,” said Klein, 46. “I didn’t believe there was an ongoing business value that could be attributed to this.”

The brokerage sale closed a week after Lehman’s Sept. 15, 2008, bankruptcy. Barclays paid $250 million for goodwill and more than $1 billion for Lehman’s headquarters and data centers because “Lehman wanted cash payments,” Klein said.

Klein, who was Citigroup’s investment banking chairman until mid-2008, advised Barclays President Robert Diamond on the deal. U.S. Bankruptcy Judge James Peck compelled Klein to disclose the fee over the objections of Barclays attorney David Boies.

Around the Clock

Peck said Klein’s payment “as an agent” of Barclays was “of interest,” as Lehman’s was the largest bankruptcy in U.S. history.

“What I care about is how much money did Klein make when this deal closed,” Peck told Boies, after Lehman lawyer Robert Gaffey asked Klein about his fee.

Klein said Diamond sought his help on Sept. 11, 2008, four days before the bankruptcy filing. The deal closed on Sept. 22, 2008. Klein said he worked almost around the clock after the bankruptcy and until the sale was completed. He now works as a consultant.

Lehman’s investment bankers at Lazard Ltd. were paid a $5 million success fee when the purchase was complete, according to a bankruptcy court filing. In all, Lazard asked the court for $5.8 million for its work from Sept. 15 through Nov. 30, 2008, according to the filing.

Markets Rebound

Lehman, its creditors and the brokerage trustee, James Giddens, sued Barclays last November as markets rebounded. The trial, which resumed this week after a summer break, pits the U.K.’s third-biggest bank against Lehman, which wants money from Barclays to pay creditors.

The money would help Lehman creditors, who may recoup only 15 cents to 44 cents on the dollar, Lehman has said, and hurt London-based Barclays, which made 2.4 billion pounds ($3.7 billion) in the first half.

Klein said Diamond asked him to assess if the transaction was possible. Klein said he concluded it was, if the deal was done quickly and Lehman’s North American operations “didn’t stay in the light very long as a business that nobody wanted.”

If the transaction succeeded, Barclays would gain thousands of trained investment bankers and traders, their customers and a “significant presence” in the U.S. equities and merger advisory businesses that it hadn’t had before, Klein said.

Since then, Barclays has expanded its equities and merger advisory businesses in Asia and Europe through its Barclays Capital unit.

Barclays Capital generated about 66 percent of the U.K. bank’s pretax profit in the first half, up from about one-half a year earlier, Barclays said this month.

The trial continues next week.

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 +1- lsandler@bloomberg.net and;

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