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Banking

The numbers that prove Lehman was deal of the century for Barclays

The collapse of Lehman Brothers was the best thing to happen to Barclays. Euromoney investigates.

It has been five years since Lehman Brothers went bankrupt and five years since Barclays picked up the US business for just $250 million. It was a steal, and one that has changed the trajectory of the domestically heavy retail bank and DCM house to that of a global financial institution. There are few happy stories to be had from the financial crisis, but Barclays, at present, seems to be one.

Before the acquisition, Barclays was not a top-10 player among the global investment banks. Now, according to Dealogic, it ranks seventh in terms of net revenues and has a 5% market share; Lehman Brothers ranked ninth in 2007.

The acquisition transformed Barclays into the global investment bank that Bob Diamond, then-CEO of investment banking and investment management, had dreamed about. Up until 2007, the bank had been heavily focused domestically on retail and commercial banking, and investment banking was centred around debt advisory.

In earnings reports, John Varley, group CEO until 2011, would mention the focus on international expansion, but the tipping point never seemed to come. Diamond, in his interview with Euromoney in 2009, referred to the timing of Lehman’s demise and consequent sale as “serendipity”.

“Ultimately, no one can really succeed in global advisory without equities and M&A,” he said. “You can build an M&A capability, and we had started to do that pre-acquisition, but you cannot have a global cash equities business without a big US presence.

“That is not something you can build organically.”

The opportunity to acquire Lehman Brothers’ US business gave Barclays the global push the firm had sought.

Barclays ranks seventh globally in M&A; it was outside the top 10 in 2007, and Lehman Brothers ranked ninth. In ECM, Barclays ranks eighth globally – again it was not a top-10 player pre-acquisition; Lehman Brothers ranked ninth. And in DCM, Barclays ranked 10th globally in 2007 and now it ranks seventh; Lehman Brothers was sixth in 2007.

It was fortunate timing. The financial industry collapse that began with Lehman’s bankruptcy made the fate of many banks uncertain – Citi, RBS, UBS, Bank of America and Merrill Lynch – and while naysayers said such a large acquisition would handicap Barclays for some time, it nonetheless showed Barclays to be in a healthier position than its peers and allowed the firm to increase momentum among clients globally.

For all the talk of cultural disharmony on the floor – blues versus greens; Barclays versus Lehman – under the leadership of former employees Diamond and Jerry del Missier, who oversaw the integration before becoming group COO, the merging of two sides of the Atlantic has had the desired results.

In the US, Barclays is now the brand it craved to be. It is the only European bank to rank in the top-five investment banks in the US league tables – where it ranks fifth, narrowly beating Citi year-to-date). And in US DCM, ECM and M&A it beats all its European counterparts to rank sixth or seventh below the US stalwarts.

The US is now a much bigger contributor to the group – both regionally and from the boost it has given to the global investment banking franchise. Barclays Capital contributed under a third to the group’s 2007 income; now it contributes almost 50%.

The US contributed £2.2 billion to the total £23 billion in income in 2007 – about 50% less than Barclays’ African business contribution. At the end of 2012, the Americas – the firm does not split out the US – contributed £7.6 billion to the firm’s £29 billion in adjusted income.

The US is now viewed as something of the golden child among the group. Group CEO Antony Jenkins intimated in April that the firm is banking on the US, as income from Europe in the wake of the credit crisis has fallen off. Income from Europe was about 50% more than the US in 2007. Now the Americas contributes double that of Europe to income.

In particular, Jenkins pointed to the success of the equities and prime brokerage business in the US. In its interim report in July, the bank’s reported income from equities and prime services to be £1.5 billion – almost £600 million more than at the end of 2012, and up £300 million on the previous year.

It buffered the decrease in FICC income and once more underscored that the Lehman’s addition continues to pay off.

However, the question is whether Barclays can keep the momentum going in the US?

Pessimists point out that non-domestic players never succeed in maintaining a top-five position for long. The bank is not without its challenges. While the Lehman acquisition might have been a positive venture, much of the goings on at Barclays around that era were far less palatable – and the legacy of those decisions continues to beat upon Barclays’ reputation.

There is the case of interest-rate rigging, and then the enlightening news that Barclays had paid exorbitant fees to secure an investment from Middle East sovereign investors during the crisis – and then the exorbitant fees it paid for a report to look into those exorbitant fees...

It is a bumbling PR nightmare in the UK for Barclays, which has so far not tainted its US reputation – although it is starting to weigh on its financials as the fines build up.

However, PR aside, it is the financial challenge that will be most important for Barclays to overcome. In the coming weeks the bank is planning a £5.8 billion rights issue to plug a capital shortfall identified by the Bank of England.

At the same time it is facing an unclear future regarding how foreign banking operations of European investment banks in the US will be treated, which might result in Barclays having a large capital shortfall in its broker-dealer unit.

The Lehman acquisition is by far the best thing to happen to Barclays during the past five – and arguably more – years. And this year the business has returned to its roots with the promotion of former Lehman banker Skip McGee to head up Barclays in the Americas.

Let’s hope he can keep the momentum going.


US league tables
Pos. Bank Net
Revenue ($m)
%share Pos. Bank Net
Revenue ($m)
%share
US IB (M&A + ECM + DCM + Loans) Rankings
Q1-4 2007 2013 YTD
1 Goldman Sachs 3,625 9.9 1 JPMorgan 2,890 11.8
2 JPMorgan 3,332 9.1 2 BAML 2,661 10.8
3 Citi 2,990 8.2 3 Goldman Sachs 1,885 7.7
4 Morgan Stanley 2,709 7.4 4 Morgan Stanley 1,710 7.0
5 Merrill Lynch 2,690 7.4 5 Barclays 1,691 6.9
6 Bank of America 2,262 6.2 6 Citi 1,690 6.9
7 Lehman Brothers 2,137 5.9 7 Credit Suisse 1,445 5.9
8 Credit Suisse 2,025 5.6 8 Wells Fargo 1,388 5.7
9 UBS 1,779 4.9 9 Deutsche Bank 1,259 5.1
14 Barclays 328 0.9 10 UBS 642 2.6
Total 36,459 100.0 Total 24,549 100.0
US M&A Rankings
Q1-4 2007 2013 YTD
1 Goldman Sachs 1,847 15.0 1 Goldman Sachs 595 11.6
2 Morgan Stanley 1,280 10.4 2 BAML 441 8.6
3 JPMorgan 940 7.6 3 JPMorgan 432 8.5
4 Citi 806 6.6 4 Morgan Stanley 342 6.7
5 Merrill Lynch 784 6.4 5 Citi 313 6.1
6 Lehman Brothers 755 6.1 6 Barclays 311 6.1
7 Credit Suisse 687 5.6 7 Credit Suisse 234 4.6
8 UBS 645 5.2 8 Lazard 212 4.2
9 Bank of America 465 3.8 9 Evercore Partners 185 3.6
107 Barclays 4 0.03 10 Jefferies 178 3.5
Total 12,303 100.0 Total 5,106 100.0
US ECM Rankings
Q1-4 2007 2013 YTD
1 Citi 697 9.5 1 JPMorgan 636 11.8
2 JPMorgan 643 8.8 2 Goldman Sachs 528 9.8
3 Goldman Sachs 626 8.6 3 BAML 527 9.8
4 Merrill Lynch 610 8.3 4 Morgan Stanley 478 8.9
5 Morgan Stanley 568 7.8 5 Citi 433 8.1
6 UBS 474 6.5 6 Barclays 377 7.0
7 Lehman Brothers 448 6.1 7 Credit Suisse 316 5.9
8 Credit Suisse 436 6.0 8 Deutsche Bank 278 5.2
9 Deutsche Bank 375 5.1 9 Wells Fargo 234 4.4
32 Barclays 16 0.2 10 UBS 158 2.9
Total 7,317 100.0 Total 5,380 100.0
US DCM Rankings
Q1-4 2007 2013 YTD
1 Citi 945 10.0 1 JPMorgan 771 11.5
2 JPMorgan 927 9.8 2 BAML 768 11.4
3 Merrill Lynch 925 9.8 3 Wells Fargo 528 7.9
4 Lehman Brothers 724 7.6 4 Citi 522 7.8
5 Goldman Sachs 719 7.6 5 Morgan Stanley 515 7.7
6 Bank of America 699 7.4 6 Goldman Sachs 452 6.7
7 Morgan Stanley 676 7.1 7 Barclays 440 6.6
8 Wachovia 501 5.3 8 Deutsche Bank 386 5.8
9 Deutsche Bank 434 4.6 9 Credit Suisse 344 5.1
12 Barclays 201 2.1 10 RBC Capital Markets 217 3.2
Total 9,469 100.0 Total 6,720 100.0
Global rankings
Global IB (M&A + ECM + DCM + Loans) Rankings
Q1-4 2007 2013 YTD
1 JPMorgan 6,252 7.2 1 JPMorgan 4,361 8.8
2 Goldman Sachs 6,000 6.9 2 Bank of America Merrill Lynch 3,671 7.4
3 Citi 5,797 6.7 3 Goldman Sachs 3,227 6.5
4 Morgan Stanley 5,131 5.9 4 Morgan Stanley 2,982 6.1
5 UBS 5,084 5.9 5 Citi 2,776 5.6
6 Merrill Lynch 4,957 5.7 6 Deutsche Bank 2,593 5.3
7 Credit Suisse 4,448 5.2 7 Barclays 2,442 5.0
8 Deutsche Bank 4,367 5.1 8 Credit Suisse 2,435 4.9
9 Lehman Brothers 3,263 3.8 9 Wells Fargo Securities 1,465 3.0
13 Barclays 1,442 1.7 10 UBS 1,425 2.9
Total 86,446 100.0 Total 49,310 100.0
Source: Dealogic
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