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Lehman Deal Fuels Barclays' Prime Ambitions

Integration of Lehman's U.S. operations paying off on prime brokerage front

March 2, 2009
By John Hintze

Barclays' acquisition of the North American businesses and operating assets of Lehman Brothers may end up being the bargain of 2008. Not only has the $1.75 billion purchase already shown a profit, but it has made a serious contender out of Barclays' prime brokerage business.

In its 2008 annual report, Barclays reported a GBP2.3 billion ($3.3 billion) gain related to the Lehman assets it picked up in September. It also said that staff had been reduced by 3,100, mostly during the Lehman integration, which brought 10,000 new employees. But sources say that fewer than 100 were let go from the combined prime brokerage unit--a part of the Barclays Capital investment banking division.

That relatively small number--which Barclays declined to confirm--is unsurprising since the firm has an avowed interest in building a bigger presence in the prime brokerage industry. In fact, given that Lehman's sudden bankruptcy prompted many already jittery customers to flee, maintaining staff to regain the bank's hedge fund clients was essential. The effort appears to have paid off.

"Since the merger, we've tried to bring some of the legacy Lehman clients back to the BarCap client base," said Munir Dauhajre, head of prime services distribution. A "significant number" of Lehman's equities clients have returned, according to Dauhajre, as have the majority of its fixed-income customers.

Barclays Capital has also worked at a breakneck pace to integrate its platform with Lehman's to support the firm's ongoing push into Asia. "The majority of infrastructure that Lehman had in the U.S. has now been fully integrated with BarCap's European and Asian infrastructure," Dauhajre said. "Our buildup in Asia is 30 percent to 40 percent of where we want it to be. It should be complete by the end of the second quarter."

Barclays hopes to further its geographic expansion by bringing together the best elements of Lehman and Barclays and funneling those products and services through the prime brokerage arm. Historically, Barclays has been strong in asset classes such as foreign exchange and interest-rate products, particularly in Europe and Asia. Its U.S. footprint was comparatively small, and its equities business was almost entirely based on the Barx--short for Barclays Automated Real-Time Execution--low-latency, multi-asset-class trading platform.

While Barclays had practically no cash-equities capabilities, Lehman excelled in the area, servicing quantitative, high-volume trading shops through its SubM direct-market-access offering. SubM was launched in the U.S. in April, according to Marty Malloy, head of prime brokerage at Barclays. "Lehman invested significant capital to develop direct-access technology to give the quant community an edge in speed," noted Malloy.

Dauhajre manages the team that brings on new clients, the equities and fixed-income financing sales force, and the hedge fund and asset management solutions group, which addresses clients' investment banking and capital raising and introduction needs. He held similar responsibilities at Lehman Brothers. Malloy, who was a Barclays executive prior to the merger, articulates the strategies and business plans for the areas under Dauhajre's supervision and heads the group that services existing clients.

Dauhajre reports to Guglielmo Sartori di Borgoricco, London-based head of distribution at Barclays Capital, and Malloy to Ajay Nagpal, head of prime services in New York. Nagpal's unit aims to provide hedge funds with a single point of access to the newly combined firm's wider set of products and services.