Ex-Lehman staff 'paid millions by Barclays'

Gideon Spanier
10 Feb 2009

Barclays Capital, the investment banking arm of Barclays, is believed to be paying tens of millions of dollars in guaranteed bonuses to bankers who used to work for Lehman Brothers - despite cutting bonuses in half for other BarCap staff.

It is thought some top Lehman staffers, who were recruited when BarCap bought parts of the US business in September 2008, have "nailed-on" bonus payouts, some running for three years. A spokesman for BarCap declined to comment on remuneration policy.

Insiders at BarCap voiced their anger privately, as some believe they have been paid much less than former Lehman staffers.

Barclays announced annual results yesterday, when it said overall bonuses at BarCap were down more than 50%.

Among those said to have compensation guarantees are three senior former Lehman figures who joined BarCap: US head of equities Gerald Donini, US global head of investment banking Hugh "Skip" McGee and US head of credit trading Eric Felder.

Felder was promoted by Lehman to co-head of global fixed income a week before the bank collapsed in September.

There is speculation he negotiated a deal worth tens of millions of dollars a year for three years.

When approached by the Evening Standard, a source close to Felder emphatically denied suggestions he was collecting as much as $25 million (£16.8 million) a year.

All Lehman staff in the US signed new contracts when they joined BarCap. But senior bankers from "legacy Lehman", as it is known internally, negotiated guarantees as BarCap wanted to retain them to ensure a smooth transition. Japanese bank Nomura made similar commitments when it bought some of Lehman's UK business.

Barclays confirmed in yesterday's annual results that it had paid £163 million worth of shares to some former Lehman staff: "Under the terms of the acquisition, the [Barclays] group assumed an obligation to make payments to employees of the acquired business in respect of their pre-acquisition service provided to Lehman Brothers.

"This amount [of £163 million] assumes the equity-settled portion of that obligation."

Barclays did not say how much cash it might also have been obliged to pay those former Lehman staffers.

Barclays chief executive John Varley has already said he is reviewing bonus policy because of the political furore about bankers' pay and rewards for failure.

Directors including Varley and BarCap chief Bob Diamond waived their 2008 bonuses. Diamond received a package worth £21 million in 2007.

BarCap's pre-tax profits dived 44% to £1.03 billion in 2008. The investment bank would have sunk into the red except for a £2.26 billion gain related to the acquisition of Lehman.

Net income fell by more than half to £2.81 billion but the ratio of compensation costs to net income rose to 82%, up from 47% a year earlier.

That meant BarCap paid out total salary and bonuses of £2.3 billion to 23,100 staff over the year. About 10,000 only joined in September with the Lehman takeover.