Business

BARCLAYS BETTERS B OF A

In the Broad Street showdown last week the slow draw won the duel as Barclays’ Bob Diamond outsmarted Ken Lewis, Bank of America’s CEO and saved plenty of ammo.

In the middle of the credit crunch meltdown, Lewis snapped up Merrill Lynch for $50 billion.

The talks happened quickly – in less than 48 hours – over the weekend as Merrill, fearing it would be pushed into bankruptcy, reached out to Lewis and a deal was done. The price: a 20 percent premium on Merrill’s Friday close.

Barclays had been talking to Lehman Brothers about a deal over the same weekend but Diamond, fearful of the firm’s $85 billion in toxic debt, backed away. By Monday, Lehman was in Chapter 11 and Diamond was able to cherry-pick the assets he wanted – walking away with Lehman’s US broker operations for $1.75 billion.

“There’s no question that Barclays gets the better deal,” said Dick Bove, brokerage industry analyst at Ladenburg Thalmann.

Lewis’ deal came with troubled liabilities from home mortgages – a staggering sum estimated at $50 billion.

In buying Lehman’s US broker dealer for $1.75 billion, Barclays’ cash deal insulated itself from the industry’s distressed securities.

“The issue is whether the cost of writing down those assets will be so big it swamps any benefit Bank of America would get from buying Merrill,” said analyst Peter Cohan of Peter A. Cohan & Associates. “Barclays’ Diamond comes out looking a lot shrewder than Lewis.”

Other analysts were simply puzzled by the sum paid by Bank of America. RBC Capital, in a research note, noted the possibility of future write-downs at Merrill – and wondered if Bank of America could have squeezed a better deal with Merrill backed into a corner.

Still, some pundits believe Lewis may yet come out smelling sweet.

Eric Goldberg, who was once a Lehman trader himself – and is now the New York-based CEO of financial technology software company Portware – reckons if Bank of America had held out for a better price after th Lehman bankruptcy, investors would have pulled big money from their Merrill accounts – and swarms of Merrill’s famed thundering herd of 16,000 financial advisors would have quit.