It was the end of summer, 2007, and Barclays Chief Executive Officer John Varley was being driven on a sunny afternoon between Hampshire and London. The months-long battle between his giant London institution and the consortium of Royal Bank of Scotland, Banco Santander and Fortis over who would buy ABN Amro was at its height, and yet Varley sounded calm as could be. "If we don't bring off the merger, there's plenty of fuel in our tanks, plenty of growth opportunities," he said that day. "It is not something that will cause me loss of sleep."

How strange these days have been. Barclays indeed lost on the deal, and ABN's acquisition has been beating RBS over the head ever since. Now Barclays is open for business in America with 10,000 new employees taken from Lehman Brothers and observers are mulling how the new-look Barclays will be positioned in the U.S., and if other European-based firms follow Barclays as a vulture player on Wall Street.

Barclays execs expect to shed 10 percent of capital markets employees by Christmas, so the look of Barclays is in flux; but for sure the Lehman purchase tilts Barclays' business even further toward corporate and institutional business. For the past two years the firm had been working very hard to boost its UK retail operations and restore retail banking as its bread and butter, even as Barclays Capital, under the dynamic Bob Diamond, contributed more and more to the company's bottom line. In 2000, wholesale businesses accounted for 20 percent of Barclays profits; by last summer that number hit 45 percent. Last year UK retail banking turned in 17 percent of Barclays' profit.

The Lehman purchase is "the kind of opportunity Bob Diamond's been looking for since the credit crunch started 18 months ago," says NCB Stockbrokers analyst Simon Willis. Absorbing Lehman gives it a top three position in a range of institutional businesses where Barclays did not play before - notably equities and M&A and, perhaps, commodities. Even a down M&A market stateside is measured in hundreds of billions a quarter.

Standard and Poor's equity research analyst Derek Chambers says he expects Lehman to be integrated quickly enough in the Barclays shop, but that it's not yet clear what the firm will do with its new capabilities. "Trying to split a bank like that into various geographies is probably quite difficult. The idea with Lehman, that there was a separable American operation as opposed to a European operation or Asian operation? I'm not sure how that's going to work," he says.

He does figure that the Lehman operation is probably good for $4 billion a year-given that revenues at the former Wall Street powerhouse were running about $2 billion a quarter until the crunch started to bite last summer. That $4 billion figure then reflects a substantial reduction. "It's going to be quite difficult to cover costs. But it's the longer-term opportunity which is the whole point," Chambers says.

Chambers agrees with Willis that Barclays is now decidedly tilted toward corporate and institutional away from retail. "It's a good opportunity for Barclays Capital in isolation. The offset to that is it changes the mix of Barclays Group earnings," he says. "I'm not entirely convinced the ratio's quite right." Chambers argues the Lehman move pushes Barclays toward the path followed by Deutsche Bank, instead of that followed by a more retail-oriented firm like HSBC. That's not necessarily bad, but it's clear there's a lot left to shake out in the U.S. "The nature of businesses done in the United States is going to be different in the future."

For now, at least, observers figure that Barclays is one of the few European players in a position to make moves like this in America. RBS has its hands full and Deutsche Bank says it's going to continue to tend to its retail knitting, or look to Asia. "For large banks, and medium-sized banks that might look to grow in the future, the way forward is to focus on countries whose economies are going to grow rapidly over the next decades," Chambers says. "The U.S. is still a big pool of economic profit. But incremental growth is going to come from other areas."

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