Barclays Reaps Benefit of Diamond’s Purchase of Lehman in U.S.

Barclays Plc (BARC) is reaping the benefit of ex-Chief Executive Officer Robert Diamond’s decision to buy Lehman Brothers Holdings Inc.’s North American unit, as the division helped to push equities revenue up 19 percent.

First-quarter income at the equities operation rose to 706 million pounds ($1.08 billion) from 591 million pounds in the year-earlier period, for the biggest increase since the Lehman acquisition in 2008. So-called investment-banking revenue, which includes mergers advisory, advanced 8 percent to 558 million pounds, the London-based lender said in a statement today.

“They have the benefit of this very robust business they got in the U.S. from Lehman,” said Christopher Wheeler, an analyst at Mediobanca SpA who rates the lender outperform.

Antony Jenkins, the consumer banking chief who replaced Diamond in August after the lender was fined 290 million pounds for rigging interest rates, is turning to the U.S. to profit from the increase in takeovers and stock offerings as the sovereign debt crisis curbs income from trading in Europe. At the same time, he’s also trying to reduce costs by scaling back the equities unit in Asia and Europe Diamond had started to build after the Lehman purchase.

Photographer: Paul Thomas/Bloomberg

Former Barclays Plc Chief Executive Officer Robert Diamond reacts as he leaves Portcullis House in London on July 4, 2012 after giving evidence to the Treasury Select Committee. Close

Former Barclays Plc Chief Executive Officer Robert Diamond reacts as he leaves... Read More

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Photographer: Paul Thomas/Bloomberg

Former Barclays Plc Chief Executive Officer Robert Diamond reacts as he leaves Portcullis House in London on July 4, 2012 after giving evidence to the Treasury Select Committee.

Build Out

“We’ve been building out our capability in prime services and equities post the acquisition of the Lehman franchise in the U.S. and what we’re starting to see is the benefits of those investments paying off,” Jenkins, 51, told reporters on a conference call today. “We are very happy with the performance of that unit.”

Cash equities and equity-derivatives products helped drive the increase in revenue, the lender said. The unit also includes research, sales and trading. The prime services operation offers stock lending to hedge-fund clients.

The MSCI World Index (MXWO) of 24 developed markets jumped 7.2 percent in the first quarter, led by gains in U.S. and Japan stocks. U.S.-domiciled stock funds attracted a net $57.4 billion in January, the best month since at least 1995, according to EPFR Global, a Cambridge, Massachusetts-based research firm.

The pace of deal-making in North America accelerated in the quarter compared with the year-earlier period, with announced takeovers rising 21 percent to about $225 billion, according to data compiled by Bloomberg. In Europe, transactions fell 11 percent amid a flare-up of the sovereign-debt crisis as Cyprus barely avoided a disorderly sovereign default.

Cushion Decline

The increases in equities and investment banking helped to cushion a decline in revenue at the fixed income, currency and commodities business. Income fell 6 percent, the lender said, as gains linked to last year’s decision by the European Central Bank to offer firms unlimited three-year loans weren’t repeated.

Rich Ricci, who oversees the investment bank, will step down in June. The 49-year-old will be replaced by Eric Bommensath and Tom King as co-CEOs of corporate and investment banking in May. Peter Horrell, who joined the bank in 1990, will become interim head of the wealth unit, replacing Tom Kalaris.

Diamond, 61, branded the “unacceptable face of banking” by then-Business Secretary Peter Mandelson in 2010 over his compensation, quit last year in the wake of the lender’s fine for rigging the London interbank offered rate.

“Bob Diamond was the architect of the Lehman Brothers acquisition but the franchise is much bigger than a single CEO,” said Mark Williams, author of “Uncontrolled Risk,” a book on the rise and collapse of Lehman Brothers, and who teaches finance at Boston University. “Pre-crisis Lehman Brothers was a money-machine and in its Barclays reincarnation is profitable again.”

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net. Ambereen Choudhury in London at achoudhury@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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