Dick Fuld's strategy has Lehman fighting for its life

Discussion in 'Wall St. News' started by makloda, Jun 10, 2008.

  1. When will Fuld resign? Does he do more damage than good by refusing to let go?


    Unlike Lehman's competitors -- Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley -- Fuld was already playing it safe, using hedges to ease risk. But Lehman was the biggest underwriter of subprime debt in 2006, and the nation's fourth-biggest investment bank refrained from shedding the junk or writing it off fast enough.

    These moves, because they were different, naturally invoked a lot of criticism. Analysts, a sheepish bunch by nature, furrowed their brows, but didn't do much more than that. Sell ratings were washing over Wall Street. It was hard to single Lehman out as something worse. Everybody looked bad. It was a backwards beauty contest with world-class talent. By March, Lehman was helped and hurt by its smaller rival Bear Stearns Cos. Bear made Lehman look good, because the former was better diversified, hadn't had an unprofitable quarter and, not least, had Dick Fuld at the helm.

    But Bear and its collapse also suggested how fragile these institutions had actually become. Bear disappeared in about three days after counterparties began bailing out. Before it was even over, these panicked investors began looking at the next weakest link: Lehman. Lehman received a temporary reprieve from the Federal Reserve's decision to lend to brokerages. To many, the government's backing would allow Fuld to give the go-ahead to raise capital, sell assets and unwind some of the poison in its system.

    But it either didn't happen or didn't happen fast enough. And pretty soon, David Einhorn, a hedge fund manager at Greenlight Capital, was pounding Lehman in speeches, interviews and on TV. Einhorn was honest. He was shorting the stock, but he also had the numbers to back him up.
    By Monday, Fuld and Lehman had been forced to do what they had been avoiding for a year, raising close to $6 billion in cash by selling a big stake in the firm. The move was aimed at restoring confidence to Lehman in the markets, but it also clobbered investors who had watched their stakes shrink by more than half in less than a year.

    Einhorn, however, isn't finished. He rightly points out that the number that may ultimately do in Lehman is $65 billion. That's the amount of hard-to-sell assets still on its balance sheet. Fuld could have been writing this junk off over the last year just like his rivals, but again, Dick Fuld doesn't operate like his peers.

    So, where does this leave Dick Fuld? Or more precisely, should investors do as their counterparts have done at Citigroup, Merrill, UBS AG and throw the bums out? This is a tough call. Fuld's been through this before. He leads Lehman like an army and there are few who have the tough-guy reputation that Fuld brings to the office every day.

    He is the longest-serving CEO of the big five investment banks on Wall Street. He turned Lehman from a bond shop into a supermarket of financial services. No one knows the culture at Lehman better -- after 25 years at the helm there's no arguing about who's responsible for that culture.
    The Lehman culture is one, up until recently, known for its risk management. Under Fuld, Lehman survived the early '90s mortgage crisis and Internet bubble pop in 2001. Rumors of insolvency swept Lehman in 1998 because the firm had been associated with Long-Term Capital Management. Fuld forcefully fought them off.

    And the diversification that was supposed to distinguish Lehman from Bear is a very real thing. Lehman is a big mutual fund company, after its acquisition of Neuberger Berman and more than half of Lehman's profits come from overseas. Few would argue the effectiveness of diversification these days. Dick Fuld is responsible for it happening at Lehman.
    But Fuld also is the man chiefly responsible for Lehman's decision to go all in with subprime mortgages.

    He also has been recognized for his performance. He was paid $22 million in 2007 and handed $41 million in restricted stock -- and that represented a substantial pay cut. He was given a package worth $51 million the prior year. He's also kept his job when other CEOs such as Stan O'Neal at Merrill and Thompson at Wachovia have been pushed out for delivering the same kind of performance.
    Merrill, under John Thain, and Citigroup, under Vikram Pandit, have benefited from the fresh approaches and assessments that a change in leadership brings. Thain and Pandit have been willing to seek capital and cut losses while long-time CEOs such as Fuld seem to adjust the balance sheet only when forced.

    It's for these reasons that Fuld should lead the Lehman army forward -- by making his own retreat.
  2. WSJ

    Maurice R. "Hank" Greenberg, former American International Group Inc. chief executive, said Monday on CNBC that the giant insurer should change its board of directors and management. "The company is falling apart," he said.