Barclays close to buying Lehman's broker-dealer arm

Barclays was poised to announce the acquisition of the broker-dealer arm of Lehman Brothers in the US last night, just days after its decision to walk away from a full takeover contributed to Lehman's collapse.

After a day locked in talks with Lehman executives, Bob Diamond, Barclays' president and head of its investment bank, told Lehman's staff yesterday evening that "you have a new partner". Speaking in a conference call reported by CNBC, Mr Diamond described the two firms together as a global bulge-bracket opportunity.

A formal announcement confirming the acquisition was expected as soon as the lawyers signed off the deal, which was thought to be around $2bn.

Lee Goodwin, a banking analyst at Fox-Pitt Kelton, said: "The market appears to be happy, as this seems like a sensible deal in principle. They are buying the core brokerage cheaply without the toxic stuff. This should be to the satisfaction of shareholders, and meet the approval of the regulator."

The transaction came just a day after Lehman filed for Chapter 11 bankruptcy protection. The collapsed group, run by Dick Fuld, failed to secure a rescue package to remain operational after a weekend of frantic negotiations with Barclays, Bank of America and the US government.

The UK group is understood to be in talks to take control of the investment banking business in the US, which includes mergers and acquisition advisory, securities trading and underwriting activities. It held negotiations with Lehman managers, rather than the administrator, because the asset is "ring-fenced" in Chapter 7, rather than Chapter 11, protection.

A takeover of the European business was not discussed, the source said, but hope was building at Lehman's European headquarters yesterday they would also be picked up by Barclays.

A Lehman insider said "almost everyone" was back at work in the Canary Wharf offices in London after the chaos of the previous day, talking to clients and carrying out client work. There was increased hope the staff would also get paid, the source said.

Barclays signalled its return to the negotiating table yesterday, although in dramatically different circumstances, by releasing a statement in the morning. It confirmed negotiations over "the possible acquisition of certain Lehman Brothers assets on terms that would be attractive to Barclays shareholders". The group was desperate to secure a deal quickly to avoid damaging the business further with a long, drawn-out process.

It is no secret Barclays Capital, the group's investment banking arm, has sought expansion in the US. Earlier this year, Barclays sent senior bankers across the Atlantic to look at potential acquisition opportunities thrown up by the credit crunch. One was Mr Diamond, the head of Barclays Capital and Barclays Global Investors, its asset management operation, who pledged to split his time between London and New York.

Mr Diamond was quoted as calling a potential takeover of Lehman as "highly unlikely but not impossible" last month. But as the US bank fell into administration, it clearly hit the distressed levels that made a deal add up for Barclays.