Barclays’ Lehman Bid Faced U.K. FSA Review of Liquidity Issues
March 12, 2010, 7:03 PM ESTBy Christopher Scinta
March 13 (Bloomberg) -- The U.K. financial regulator told Barclays Plc in September 2008 that an acquisition of Lehman Brothers Holdings Inc. might damage the balance sheet of one of the country’s most important banks.
The Financial Services Authority told Barclays it would look very closely at the effect any transaction would have on Barclays’ liquidity and capital and “would not countenance” a drop of Tier 1 capital below FSA requirements, according to a statement the regulator gave to Lehman’s bankruptcy examiner in January that was made public yesterday.
“As Barclays was (and remains) one of the U.K.’s clearing banks it was important to ensure that Barclays did not expose itself to a level of risk that could weaken it to an extent that it could have wider systemic impact on the U.K. financial system,” the FSA said in the statement.
Lehman tumbled into its $639 billion bankruptcy, the biggest in U.S. history, because it didn’t have enough liquidity and lost the confidence of its counterparties, Anton Valukas, the U.S. Trustee-appointed examiner, said in a 2,200-page report. The report said a deal with Barclays collapsed when the banks learned the FSA refused to waive a shareholder vote.
FSA Chief Executive Officer Hector Sants and Barclays CEO John Varley agreed that no proposed deal should have put Barclays at risk from the FSA’s point of view, the regulator said.
Varley advised Sants that, in light of the guarantee the Federal Reserve Bank of New York was requiring, it wasn’t likely to reach a suitable structure, the FSA said.
Paulson Warning
Varley was told by then-U.S. Treasury Secretary Henry Paulson on Sept. 12, 2008, that any bid would have to come by the end of the weekend or Lehman would be put into an orderly run off, the FSA said.
Lehman filed for bankruptcy on Sept. 15, 2008, and London- based Barclays bought its North American brokerage business and associated real estate days later for $1.54 billion.
Lehman and its creditors have sued Barclays for at least $5 billion, saying the bank made a “windfall” on the purchase. Barclays responded that it’s owed $3 billion. A bankruptcy-court trial is set for April 26.
Barclays spokesman Michael O’Looney in New York declined to comment.
Examiner Report
Valukas said of Barclays’s purchase of the brokerage that a “limited amount of assets” belonging to Lehman were “improperly transferred to Barclays.” He added that the value of the assets may not be “material.”
The assets improperly transferred to Barclays included equipment with a book value of less than $10 million and customer information of “questionable value” that Barclays didn’t obtain in a “wrongful or unlawful” way, Valukas said.
He found “limited colorable claims” against the bank for the transfers. The examiner found no evidence that any securities transferred to Barclays in the sale of the brokerage were owned by Lehman or its affiliates.
The U.S. case is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--Editors: Anthony Aarons, Edward Evans, Glenn Holdcraft.
To contact the reporter on this story: Christopher Scinta in London at cscinta@bloomberg.net.
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.
