Lehman Research Lives

=New York – The first indication that we saw that indicated that Lehman equity research had survived was a sample report of Barclays Capital research report dated September 26. In the footnote on the first page, reference to the ability of US clients of Barclays to receive third party research from a web site with the URL www. lehmanlive.com was made. Of course, this must relate the continuation of third party research being offered as part of Lehman’s Global Research Settlement. Presumably Barclays has decided to maintain the terms of the settlement until the legal ramifications of the contractual obligations of Barclays, vis-a-vis Lehman have been sorted out.Yesterday morning a press release confirmed the Lehman’s equity analysts were being retained (at least until year end). Though unable to publish, since the September 19^th bankruptcy, Lehman analysts kept up with their coverage lists and have changed their rating on 36 companies so far.Barclays Capital bought the department, as well as the rest of Lehman’s North American broker-dealer and investment banking operations, for $ 1.54 billion. Barclays Capital is the investment banking division of Barclays Bank PLC. Barclays Capital provides large corporate, government and institutional clients with solutions to their strategic advisory, financing and risk management needs.  Barclays Capital has offices around the world, employs over 20,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide.

The structure of the takeover seems to mimic the JP Morgan takeover of Bear Stearns, where employees were kept on for several months and allowed to interview for JPM positions.

The Lehman equity research department has received first-place rankings for past five years in Institutional Investor magazine’s annual “All-America Research Team” survey.  As such, we anticipate that Barclays will try to utilize the branding of Lehman Research for the next several years at a minimum. We note that the acquisition of several major research services has resulted in co-branding in the past. Examples are the maintenance of the AG Edwards brand when the firm was purchased by Wachovia and the maintenance of the CFRA brand when it was purchased by Riskmetrics.

Our guess is that the US Lehman research department will largely survive,  owing to the wide brand recognition, the perception of quality on the Street and also because analysts are likely to be somewhat more accommodating in their expectations  given the current demand for fundamental analysts. As for the international team, there is likely to be much more carnage with head-to-head competition for positions with Barclays analysts.