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Lehman Brothers, Barclays Reach Deal: Report

TSC Staff

Lehman Brothers (LEH Quote) has reached a deal to sell parts of its business to Barclays (BCS Quote), a day after failing to land a deal and filing for bankruptcy, the Financial Times reported Tuesday.

The businesses Lehman is selling and the terms of the deal were unclear, but sources close to the matter told the FT that it centered on Lehman's U.S. broker-dealer operations. Barclays and Bank of America (BAC Quote) had been one of Lehman Brothers' two main suitors before talks collapsed over the weekend. Barclays backed out and BofA bought Merrill Lynch (MER Quote) instead.

The 158-year-old investment bank filed for Chapter 11 protection Monday to "protect its assets and maximize value," Lehman said in a statement. Lehman Brothers' complicated unwinding will involve the firm making certain motions so that it can continue to manage its operations.

None of the broker-dealer subsidiaries or other subsidiaries of Lehman will be included in the filing and all of the broker-dealers will continue to operate, the company said. Lehman customers, including those of its Neuberger Berman subsidiary, may continue to trade or take other actions on their accounts.

Lehman's bankruptcy filing listed debts of $613 billion and named banks from Tokyo, Hong Kong, New York, Singapore, Taipei and elsewhere as unsecured creditors owed hundreds of millions of dollars, The Wall Street Journal reported Monday.

The agreement by the banks and Fed to attempt to smooth the impact of a liquidation came out of a series of emergency meetings over the weekend, at which government officials and top Wall Street executives tried to work out a rescue plan for Lehman. At the same time, employees of investment banks were scrambling to assess their own firms' exposure to Lehman and considering entering into credit default swap agreements with other banks that would effectively cancel out agreements they had with Lehman.

Government officials, including Treasury Secretary Henry Paulson, had said they were reluctant to provide funding or guarantees for a Lehman rescue.

The government is finding itself increasingly on the hook for the credit crisis that began to envelope financial institutions last summer. Last week, it took over troubled mortgage giants Fannie Mae (FNM Quote) and Freddie Mac(FRE Quote), and earlier this year, the Fed agreed to backstop JPMorgan Chase's (JPM Quote) purchase of failing investment bank Bear Stearns.