September 16, 2008 / 3:17 AM / 10 years ago

UPDATE 2-Lehman in talks to sell part of firm to Barclays-WSJ

(Adds details, background)

NEW YORK, Sept 15 (Reuters) - Lehman Brothers LEH.P is in talks to sell parts of the company to Barclays Plc (BARC.L), with the potential for an agreement to be reached as early as Tuesday, the Wall Street Journal reported on its website.

The report late on Monday came after Barclays confirmed it had considered a bid for all of Lehman, whose holding company filed for Chapter 11 bankruptcy protection on Monday after failing to find a buyer over the weekend.

A source told Reuters on Monday the British bank had pulled out of the bidding for the entire firm because a deal would have required it to guarantee Lehman’s trading obligations.

Lehman became the largest U.S. bankruptcy and the highest-profile casualty of the global credit crisis.

Citing unidentified people briefed on the discussions, the WSJ said Lehman executives were at the company’s New York headquarters trying to create a plan that would preserve many jobs and operations of Lehman.

A Lehman representative declined comment on the latest report and a U.S. representative for Barclays was not immediately available for comment.

The latest deal under discussion would fold Lehman’s core business — underwriting stocks and bonds, providing merger advice, and securities trading — into Barclays, UK’s third-largest bank, according to the Journal.

But the deal was not certain and questions remained such as the price Barclays might pay and what would happen to Lehman’s toxic mortgage-security and real estate assets, according to the story.

Barclays was not expected to take on Lehman’s foreign operations, which have been growing in recent years in both Europe and Asia, according to the Journal.

Lehman is expected to sell most of its businesses, including its broker-dealer operations and its Neuberger Berman asset management unit.

Those units did not file for bankruptcy protection and are operating, but customers are often jittery about trading with a company whose parent is bankrupt, so selling the units before too many customers leave would be crucial.

Lehman is the biggest investment bank to collapse since 1990, when Drexel Burnham Lambert filed for bankruptcy as the junk bond market cratered.

Lehman listed $639 billion of assets as of the end of May in its bankruptcy filing, putting it well ahead of long-distance phone company WorldCom Inc, which listed $107 billion of assets when it filed for bankruptcy in 2002.

The bankruptcy filing came after a weekend of heated negotiations among regulators and Wall Street firms about Lehman’s fate.

The U.S. government refused to backstop Lehman’s worst assets in the way it backstopped Bear Stearns Cos’ sale to JPMorgan Chase & Co (JPM.N). Government officials told banks to support Lehman or else be prepared for more investment banks to lose investor confidence and fail.

But prospective bidders refused to buy Lehman without government support, people briefed on the matter said. In the end, Lehman was allowed to fail, and Bank of America agreed to buy Merrill Lynch MER.N, which was seen as the next weakest U.S. investment bank. (For more stories on the collapse of Lehman and its plans to sell assets, click on [ID:nN13574113])

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