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income research; the Greenwich survey said they had the deepest, highest quality of

penetration of U.S. institutional clients," Diamond explained later.

"So all of a sudden we realized that as proud as we were . . . of our strength in the UK

and Europe, the biggest strategic issue we faced was, ' How do we get into the equity

business without a U.S. franchise? And how do we become a scale player in the U.S.?' "

The consensus was that if Barclays could get Lehman cheaply, according to Diamond,

"the U.S. franchise was worth the pain of integrating the rest." Provided, of course, that

due diligence did not throw up any surprises.

But BarCap had a major obstacle.

Diamond believes he had warned Paulson that the other key player in a deal with

Barclays was the British regulator. The Financial Services Authority (FSA) would never

sanction the deal unless Barclays got a guarantee for funding when markets opened

Monday morning. Under British law, Barclays had to have a shareholder vote before it

could stand behind Lehman's liabilities. It could not hold a vote in time and "the FSA

would not waive that requirement." The funding would have to come from the United

States, either from a third party, such as Warren Buffett (a rerun of the LTCM scenario)

or from the Fed, which would, of course, mean U.S. taxpayer dollars were at stake. The

British were not going to put their taxpayers' money at stake for a private deal by

Barclays.

Diamond says he told Hector Sants, the CEO of the FSA, that he would explain to the

U.S. Treasury secretary and to Tim Geithner of the Federal Reserve Bank of New York

that the UK regulator should not be called for help that weekend. He and the Americans

would find a way around it.

But was he conning himself? Even as Diamond and his crew flew over the Atlantic on

Thursday night, the staff inside the British regulator was skeptical that Barclays could

pull of a deal that met their requirements.

A source inside the FSA says: "We just thought, 'Oh, God, there go the Americans . . .

Diamond and Paulson and all their buddies thinking they can make us be part of their

deal with all their big talk.'"

But Diamond believed he could make it work.

Around lunchtime on Friday, September 12, Diamond entered the Lehman building

through a back elevator, so no one could see him.

He was meeting with Fuld, and the conversation was going to be brief and delicate.

According to Diamond, Fuld asked if he could be involved in the new company once

Barclays bought Lehman. "It was a really difficult conversation," Diamond says. "But I

had to have it. I had to say: ' If we' re able to do this, whether I wanted you to be a part of

it or not, the regulators are not going to allow it. And we should just get this off the table

now.'"

Diamond then left for the midtown law offices of Simpson, Thatcher and Bartlett, where

his team was waiting. He was surprised to see that no Lehman executives were there.

"We had an army of people," Diamond recalls, "but we couldn't find Bart McDade. We

couldn't find any of [Lehman's] senior people. There was absolutely no data for us. The

reason was, they were with BofA."

He was irked partly because Paulson and Geithner had told him to rush over to get a head

start on due diligence and partly because both men had also assured Diamond that if he

was serious, they wouldn't hand Lehman to another suitor. And Bank of America was a

particular thorn for Diamond since he'd recently lost the La Salle bid to BofA in the

takeover battle for the Dutch bank ABN Amro.

But Diamond would not stay angry for long. He would soon discover that a deal between

Lehman and Bank of America was all but kaput.

Fuld called Ken Lewis's home number three times that Saturday. Every time, Lewis's

wife Donna picked up and told him that her husband wasn't there. Fuld kept apologizing:

"I' m only calling because Ken gave me this number. . . ."

Eventually, she said to him, "If he wanted to talk to you, he would."

Friday