Under the agreement, Lehman Brothers will buy Morgan Stanley's new one million-square-foot office tower at 745 Seventh Avenue in New York. The move will keep more than 5000 jobs in New York City.

The 32-story tower, located in Times Square one block from Morgan Stanley's headquarters building at 1585 Broadway, has been under construction since 1999 and should be ready for occupancy later this year. Terms of the transaction were not disclosed.

Business continuity planning is a key reason for Morgan Stanley's decision. With primary space at 1585 Broadway and 745 Seventh Avenue, the firm's trading and backup facilities would be concentrated in two buildings within one city block that are dependant on the same transportation and power infrastructures.

Morgan Stanley chairman and chief executive officer Philip Purcell, says of the deal: "Morgan Stanley will continue to have a major presence in New York City and will be better positioned from a business continuity standpoint."

Morgan Stanley's global headquarters is in the 1.4 million-square-foot building it owns at 1585 Broadway. The firm recently secured new office space on Third Avenue in Manhattan, and it will continue to lease significant additional space at 750 Seventh Avenue, 1633 Broadway, Pierrepont Plaza in Brooklyn, and in several retail branch locations throughout the city.

The deal also resolves critical office space problems for Lehman Brothers, which was forced to relocate 600 staff to a mid-town hotel in the immediate aftermath of the attacks on the World Trade Centre. Lehman Brothers' global headquarters were at the World Financial Center in downtown Manhattan.

Chairman and CEO Richard Fuld, comments: "With a new, state-of-the-art headquarters building in Manhattan built specifically for investment banking and capital markets activities, we can relocate our operations quickly and efficiently."