Barclays to buy Lehman Brothers banking divisions

Two days after walking away from a deal to purchase all of Lehman Brothers, Barclays PLC said Tuesday it had agreed to acquire Lehman's North American investment banking and capital markets businesses for $250 million in cash.

The British bank will also purchase Lehman's New York headquarters and its two data centers in New Jersey for $1.5 billion.

Lehman's parent company Lehman Brothers Holdings Inc.'s filed for bankruptcy protection on Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid a continued downturn in the credit markets.

The deals require approval from the bankruptcy court.

Also on Tuesday, the U.S. government announced an $85 billion emergency loan to rescue insurance giant AIG in an effort to avoid further economic turmoil - a move they were not prepared to make in Lehman's case.

Barclays said it will acquire Lehman's North American banking operations, which include fixed income and equities sales, trading and research and investment banking business. The deal throws a lifeline to about 10,000 employees working in the divisions.

Barclays and Lehman reached the agreement hours after Lehman's first bankruptcy hearing in a crowded courtroom at the U.S. bankruptcy court in Manhattan, just steps away from Wall Street's iconic bull statue.

JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York. The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.

Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.

"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.

Judge James Peck approved a motion that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings. The issue arose over the past two days, when JPMorgan made the advances to Lehman to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.

Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing. It asked Lehman Chief Executive Richard Fuld to testify before the committee.