Suitors size up Indian Lehman - Where it all began

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By SAMYABRATA RAY GOSWAMI AND VIVEK NAIR WITH INPUTS FROM AGENCIES in Mumbai
  • Published 18.09.08
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Mumbai, Sept. 17: Barclays — the British bank — emerged tonight as the knight that could rescue Lehman Brothers’ investment banking operations in India.

News of the Barclays bailout came amid mounting speculation that software giant Wipro might be interested in the 2,000-member back office operations of the troubled investment bank which filed for bankruptcy protection in the US on Monday.

Barclays is considering the possibility of acquiring the profitable Lehman assets in Asia — and the reports ignited hope among Lehman’s employees in India that at least some of them might be able to save their jobs.

“We now have the opportunity, and it’s an opportunity that we’re looking at quickly and seriously, to see what else might fit with the businesses we’re developing around the world,” Barclays chief executive John Varley told analysts at a conference call that was held a day after it announced a $1.75-billion deal to acquire Lehman’s core US operations.

In an internal memo circulated to employees, Lehman chief executive Richard Fuld said talks were under way to sell “hopefully, in the near term, parts of our European and Asian operations as well”.

“Our information is that if all goes well, the Asia deal will be sealed in the next 48 hours,” said a top source at Lehman Brothers’ investment banking division in Mumbai’s Worli area where 100 people work.

The source said Barclays had already started discussions with relevant international regulatory authorities. However, there are no assurances that all the international operations will be acquired.

But Barclays wasn’t the only one on the prowl. Reports indicated that Anand Rathi Securities — an eponymous Mumbai-based brokerage founded by a former president of the Bombay Stock Exchange — was also eyeing Lehman’s institutional broking business in India.

The institutional broking business, which notched up revenues of Rs 40 to 70 crore last year, is one of the profitable elements of Lehman’s India operations, which was beefed up last year when it acquired Brics Securities, a small local brokerage.

Brics Securities had emerged last year as one of the top institutional brokerage businesses. It was formed in October 2003 when the JV Gokal Group acquired Birla Sun Life Securities — a joint venture between Aditya Birla Group and Sun Life of Canada.

Lehman did not disclose how much it paid for Brics Securities at that time. The industry buzz is that it paid Rs 200 crore for it. If the business is spun off now, it would probably be sold at a deep discount to that price.

The institutional broking business in India is extremely competitive in a field that bristles with large players like Morgan Stanley, Goldman Sachs, Deutsche Securities and local firms such as Motilal Oswal and Prabhudas Lilladher.

The prospect of a Barclays’ lifeline to Lehman operations in India lifted spirits in Lehman’s Worli office. “People are banking on hope now,” the source said.

A Barclays buyout of Lehman operations in Asia would enhance its presence in the region. The British bank recently added a merger and acquisition division after picking up senior officials from ABN across the region.

Barclays’ Asia brokerage has been focused on foreign exchange and debt while Lehman has built up a formidable equities trading team in Asia.

The investment banking division of Barclays, Barclays Capital, currently only offers fixed income products here. A senior Barclays executive said: “India is one of our priority markets. Our focus now is on growing the market here. There are plans to increase our capital allocation and raise our head count in India.”

Lehman’s Mumbai office learnt today that Barclays had also decided to retain most of the bankrupt firm’s London-based in-house legal team of 50 lawyers. “It is a straw, really, but that seems a whole lot for a drowning person,” said a legal executive attached to the office.

The mood at the Powai-based back office was equally upbeat. “News of Indian BPOs making bids to take over this back-office has brought some cheer. On Tuesday, the whole place had seemed like a funeral parlour,” said an employee.

There were reports that Infosys was also interested in the Lehman back office.

However, a Wipro spokesperson in Bangalore said the company would not comment on market speculation.