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At Barclays, It's All About Lehman

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Barclays loves the name that so many still hate on Wall Street: Lehman.

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The banking crisis is over, at least across the pond.

That's the sentiment after Barclays (BCS) and HSBC (HBC) posted strong earnings for the first half of the year this morning. Shares of both banks are surging and analysts practically tripping over themselves with glee, telling Bloomberg that "the market thinks the worst is over."

Just how strong were the reports? HSBC's net profit fell by more than half during the first six months of the year, to $3.3 billion from $7.7 billion last year. At Barclays, profit jumped by 9 percent but its impairments on bad debts surged by 63 percent during the period, more than what analysts had predicted.

But don't let that ruin the fun.

The excitement over Barclays' results stems mainly from its surge in investment banking and trading. Like JP Morgan (JPM) and Goldman Sachs (GS) did in recent in recent months, Barclays benefited from the thawing of the credit markets.

But the real gem in Barclays message is the very same name that continues to incite anger and resentment more than a year after its downfall: Lehman Brothers.

Barclays quickly snapped up some of the U.S. assets of the failed bank for a song last September in a move that looks better and better for the British bank with each passing quarter.

Barclays president Bob Diamond again called the Lehman acquisition a strong and strategic move. "It's an outstanding franchise," he said today. "It gives us incredible scale and depth in the U.S. with clients."

After Lehman filed for Chapter 11 bankruptcy last September, Barclays bought the bank's North American banking and brokerage operations for just $250 million, plus liabilities. At the time, some analysts questioned the deal for Barclays, which had been focused on broadening its retail business.

But now banking is on top at Barclays while the retail business falters. According to Bloomberg, the Lehman acquisition catapulted Barclay to become the sixth-largest global mergers and acquisitions advisor in 2008, up from number 67 in 2007. Earnings at Barclays Capital, which absorbed most of the Lehman assets, nearly doubled during the first half of this year. Diamond said today the firm expects to hire 1,000 new people in banking by the end of this year.

All that success is not lost on Lehman creditors, who are still battling it out over who gets what of the little bit that's left from the biggest bankruptcy in history. Lawyers for Lehman are seeking information into how Barclays valued Lehman's liabilities at the time of the deal, which was approved swiftly by the bankruptcy judge at the time.
No positions in stocks mentioned.
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