Clock Ticking on Sale of Lehman’s Asia Group

HONG KONG (Reuters) – Lehman Brothers staff in Asia remain in the dark about the fate of their business, with the clock ticking on any deal with a potential buyer.

The more time that goes by, the more likely Lehman is to lose bankers and advisory mandates to rivals.

But rival investment bankers in Hong Kong on Thursday said they expected British bank Barclays to buy all or part of Lehman’s Asia business, after it agreed on Wednesday to pay $1.75 billion to rescue Lehman’s core U.S. business.

In terms of mergers and acquisition advisory and equity capital markets, Barclays is not a major player in Asia, while Lehman has aggressively built its investment banking presence in the region.

“I would be surprised if Barclays did not buy the Asia business,” said an investment banker at a competing bank who did not want to be identified. “It’s not going to cost them much.”

Several sources familiar with the matter say that other investment banks in Asia are also looking at Lehman’s business.

But no word has come yet on any such deal, and Lehman bankers are getting frustrated and nervous that the Asia group will be left to liquidate, said sources close to the bank.

Lehman, once the fourth largest U.S. investment bank, filed for bankruptcy protection this week, having collapsed under the weight of its exposure to subprime mortgage-related securities.

Word quickly spread that Barclays may also try to save some of Lehman’s European units, but nothing was said of the Asia operations.

It was not clear if Barclays had the right of first refusal to buy Lehman’s Asian operations.

A Barclays spokeswoman in Hong Kong, Clare Williams, declined to comment. Lehman also declined to comment.

OPPORTUNITY, NOT OBLIGATION

Lehman has 3,000 employees in Asia in 10 offices — roughly 1,300 in Tokyo and 800 in Hong Kong. The Tokyo office has a large fixed income group, while Hong Kong mainly houses M&A, equity capital and debt capital bankers. In Singapore, Lehman employs 250 staffers, mostly focused on commodities and trading.

Lehman’s net revenue from Asia-Pacific in the first half of the year totaled $1.41 billion, nearly matching its haul for all of 2006 and accounting for roughly 20 percent of the bank’s overall revenues.

Barclays Group Chief Executive John Varley told analysts on Wednesday the bank had the opportunity, but no obligation, to acquire additional bits of Lehman. The bank said it would focus on areas where Lehman is strong and Barclays Capital is not.

“So it would be mostly around the equity and equity capital markets business,” Barclays President Bob Diamond told analysts on a conference call on Wednesday.

“You shouldn’t assume we aren’t already acting on the opportunities that we think are beneficial to us.”

Barclays has 5,000 employees in investment banking and investment management in 11 countries in Asia. It also has retail banking networks in India and Pakistan.

As an investment bank, Barclays’ Asia strength is mainly debt and derivatives. Lehman would add capability in M&A and equities.

While Barclays hired 19 M&A bankers in Asia this year, the bank does not rank on the Asia M&A league tables. Lehman Brothers ranks 2nd behind JPMorgan in year to date M&A rankings in Asia ex Japan, on 15 deals worth $32 billion, according to Thomson Reuters.

Barclays’ Asian shareholders include China Development Bank, which holds about 3 percent, as well as Singapore’s Temasek and the Qatar investment authority.

KPMG has been appointed as the provisional liquidator of two of four Lehman units operating in Hong Kong.

By Michael Flaherty and Tom Miles

(Editing by Lincoln Feast)