lehman creditors

Richard Fuld : usd 17000 per hour , half a billion from 1993 till today. Where is the money ?

Richard Fuld charity work : robin Hood Foundation!!!!

Fuld serves on the board of directors of the Federal Reserve Bank of New York and is a member of the International Business Council of the World Economic Forum and the Business Council. He also serves on the Board of Trustees of Middlebury College and New York-Presbyterian Hospital, as well as on the board of directors of the Robin Hood Foundation.[3]


lehman authorised to sell to barclays


lehamn history ft
Lehman Brothers Faces Objections to Barclays Sale (Update3)

Lehman Creditors May Be Able to Recover Fuld's Pay, Lawyers Say

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Broken brothers: How brinkmanship was not enough to save Lehman
By Henny Sender, Francesco Guerrera, Peter Thal Larsen and Gary Silverman
Published: September 15 2008 20:22 | Last updated: September 15 2008 21:44


On May 29 2007, with the clock ticking on one of the greatest global property booms in history, Richard Fuld rolled the dice on the US real estate market one more time.

The odds were not good for the chairman and chief executive of Lehman Brothers investment bank. It had been nearly a year since the US Federal Reserve brought an end to the era of cheap money with a series of interest rate increases that took its overnight lending rate from 1 per cent in June 2003 to 5.25 per cent in June 2006. It had been more than three months since HSBC became the first big global bank to reveal multi-billion-dollar losses on subprime mortgage loans. The credit cycle was turning, as it had so many times before during Mr Fuld’s four decades at Lehman, but he still felt lucky.

As a result, Lehman, a bank with a little more than $20bn (€14bn, £11bn) in equity at the time, joined Tishman Speyer, a developer, and Bank of America to spend $15bn for Archstone-Smith Trust, a property investment company that owned a giant portfolio of apartments in “the most desirable” neighbourhoods of large US cities.

Lehman had its reasons for believing that it could still make money in US property. Blackstone, a private equity firm run by former Lehman executives Steve Schwarzman and Pete Peterson, had just stunned Wall Street by sealing a string of profitable deals to sell several upscale office towers acquired as part of its highly leveraged $36bn buyout of Equity Office Properties a few months previously.

The Archstone deal was also consistent with the high-risk, high-reward culture that had taken root at Lehman. With less capital than rivals such as Goldman Sachs and Morgan Stanley, Lehman was known for punching above its weight and being quicker than others to seize opportunities. Mr Fuld, a former bond trader known to associates as “the gorilla”, was the embodiment of this culture. A man of military mien known for his direct management style, he was determined, having re-established the bank’s independence from American Express, to return it the pinnacle of Wall Street.

He almost got there. In the months preceding Archstone, Lehman was worth $60bn and was seen as one of Wall Street’s best-run banks. Mr Fuld had also showed himself very much aware of the storms gathering over the financial system. At Lehman’s 2006 Christmas party visitors noted his cautious outlook for the year ahead. A month later at last year’s World Economic Forum in Davos he talked openly about being “really worried” about the risks posed by property valuations, excess leverage and the rise in oil and commodity prices. “We’re taking some money off the table,” he said.

But while Mr Fuld may have been aware of danger and prepared to take precautions, within Lehman, as one insider remembers, “the acquisition machine rolled on”.

Below: From Alabama to a doomed second act
With the benefit of hindsight, the Archstone deal was a sign that Lehman was losing its touch. Just as the deal was being done, an era of wheeling-and-dealing fuelled by mountains of cheap debt was coming to an end. Over at Blackstone, Jon Gray, the group’s property chief, was already confessing to associates that the office tower sales the firm had made in April 2007 would have been impossible a month later. Mr Fuld, in other words, had committed the ultimate Wall Street sin – buying at the top of the market.

Archstone was a millstone for Lehman, part of a crippling $30bn-plus in property assets that the bank could not sell and investors could no longer tolerate. The bank’s stock market capitalisation crumbled to the point where it stood at $2bn last Friday. By Monday morning it was seeking protection from its creditors.

Lehman on Monday declined to comment but insiders said the bank was hit by a crisis of such virulence that Mr Fuld and other senior executives could have done little to avoid its consequences. While the Archstone deal came near the peak of the property cycle, they added, it did not in itself play a big part in Lehman’s demise. Mr Fuld’s allies said the chief executive did not disregard risk-management practices, pointing out that top executives met every Monday, often for several hours, to review the bank’s risk practices.

Yet the bet that left Lehman with a massive illiquid property portfolio was hardly out of character for a bank built in the image of its pugnacious 62-year-old chief executive. Mr Fuld was known as a canny operator, leveraging his bank’s prowess in the fixed-income markets and its small pile of capital to take big risks and earn bigger returns than larger rivals. Lehman thought of itself as the smart, scrappy underdog – not just good at spotting chances but also nimble enough to get out in time.

It was a formula that was prone to trouble. In 1998, when Wall Street executives and regulators met at the New York Federal Reserve to rescue the Long-Term Capital Management hedge fund, Lehman was allowed to chip in less money than most of its competitors – an unspoken acknowledgement that it had problems of its own.

However, Mr Fuld brought Lehman back from the abyss in take-no-prisoners fashion, pushing regulators to clamp down on rumour-mongering and firing up his staff. His inspirational abilities were on display after the September 11 attacks forced Lehman to evacuate its headquarters and relocate to a midtown hotel. There, Mr Fuld addressed his staff like a general going into battle.

With the Fed keeping interest rates low to stave off a recession after the terrorist attacks, Lehman grew rapidly, playing an outsized role in the securitisation market and the leveraged lending businesses – and produced quarter after quarter of record earnings from 2005 to 2007. Mr Fuld was feted as a visionary and paid as such, with Lehman awarding him a $186m 10-year stock award bonus in 2006 – prompting criticism that the investment bank’s board of directors had grown too cosy with their chief executive.

But as Lehman grew bigger, signs of internal tensions emerged. In 2004, Mr Fuld picked Joe Gregory, a former commercial paper trader, as president and chief operating officer – effectively his successor. Mr Gregory personified Lehman’s loyal, co-operative culture. But former colleagues say he became obsessed with the administrative processes and recruiting practices, while neglecting risk management.

They also accuse him of ratcheting up the appetite for risk and forcing out executives who disagreed. One of the Lehman bankers who urged caution, former colleagues say, was Mike Gelband, former head of fixed-income, who left in early 2007.

At the time of the Archstone deal and for some months afterwards, Lehman insiders recall few, if any, internal objections. Instead, executives remained so bullish that they congratulated themselves on having picked up Archstone on the cheap. Internal criticism became more common after Mr Gregory helped install Erin Callan as Lehman’s chief financial officer in the summer of 2007. A well-regarded investment banker, Ms Callan was widely touted as a rare example of a woman breaking into Wall Street’s upper ranks. But some Lehman bankers questioned whether putting a dealmaker in charge of the books was the right move to make as the subprime mortgage crisis worsened.



Mr Fuld’s role in these decisions was hard to pin down because colleagues say he was growing more remote. Mr Fuld spent an increasing amount of time in his mansion in Sun Valley, a ski resort in Idaho that he has used for years to entertain clients, or travelling around the world. “When Dick came over it was like a state visit,” says one London-based banker. Some bankers believed, too, that Mr Gregory shielded Mr Fuld from what was going on and discouraged executives from raising criticism or reporting bad news. “Joe was like Dick’s bodyguard,” says one senior banker.

It could be argued that clearer-eyed commentary on Lehman came from hedge fund managers such as David Einhorn of Greenlight Capital, who repeatedly questioned whether the bank’s problems were deeper than many thought. Lehman tried to wave off such criticism but investors drove the bank’s shares lower.

Lehman tried to shore up its defences this year, securing a $2bn credit line from its banks on March 14 – the Friday before the Fed-engineered sale of Bear Stearns to JPMorgan Chase. As part of the rescue, the Fed said it was making its borrowing window available to securities firms in a move widely seen on Wall Street as influenced by Mr Fuld, who sat on the board of the New York Fed. Indeed, some bankers referred to the measure as the Save Lehman Act of 2008. If so, it was to provide only a temporary respite.

Lehman’s access to the discount window seemed to preclude a Bear-style run on the bank. But Mr Einhorn continued to question the value Lehman assigned to its holdings. Analysts were particularly sceptical about Archstone, arguing that it should be marked down by 30 per cent – in line with comparable property investment companies and the relevant indices. In that case $4bn in bridge equity provided by a Lehman-led bank group – intended to be eventually replaced by funds from other sources – would be at risk.

In June, Lehman stunned the market with a $2.8bn loss. The bank demonstrated its connections in the financial world, however, by also raising $6bn in new capital. Hank Greenberg, the former AIG chief executive, invested through his CV Starr vehicle, along with the state of New Jersey pension fund; Wes Edens, a former Lehman executive and the founder of Fortress Investment Group; and GLG, a hedge fund 20 per cent owned by Lehman.

But for its critics, Lehman’s earnings report contained further reasons to worry. Despite the loss, it was marking its Archstone holdings at 85 cents on the dollar – far higher than bearish critics thought appropriate.

What the hedge funds did not know was that Lehman’s search for new capital was going international. Before raising $6bn from domestic sources, Lehman had sought an investment from Korea Development Bank, a South Korean state-controlled lender.

Two days after the earnings announcement, Mr Gregory and Ms Callan were ousted, and Bart McDade, previously head of Lehman’s equities business, was installed as president. The reshuffle sparked more turmoil inside the bank. Executives who had left, such as Mr Gelband and Alex Kirk, a former fixed-income banker, returned to senior positions. In London, Jeremy Isaacs, a long-serving executive who had overseen Lehman’s expansion in Europe and Asia, signalled that he wanted to leave.

In public, Mr Fuld embarked on a crusade to stop what he regarded as a concerted campaign to sink Lehman by a small group of short-sellers. He called on the Securities and Exchange Commission to take action, drawing up a voluminous dossier of “evidence”. The SEC eventually tightened rules outlawing abusive short-selling for Lehman and several other financial groups. But Mr Fuld went further, phoning some Wall Street counterparts to say that he had heard their traders were spreading false rumours about his bank.

But such behind-the-scenes actions only served to confirm the anxieties of Mr Fuld’s critics. In late June and early July, he began discussing the possibility of a management buyout and initiated talks with half a dozen private equity firms, with the idea that each would put up about $2bn. Those talks also went nowhere. By August, analysts were anticipating red ink, with JPMorgan predicting a possible $4bn loss. The share price drop accelerated.

Within the bank, the atmosphere became siege-like. “It was like Fort Apache, The Bronx,” said one senior insider, with reference to a hard-nosed film centred on a beleaguered New York police station.

During the first week of August, Lehman hosted top executives of Korea Development Bank and China’s Citic Securities at its New York headquarters for talks on the purchase of a major stake in the bank. Mr Fuld greeted his guests with a show of strength, people familiar with the talks said. Even when he was not in the room, he directed the negotiations, according to one adviser to KDB, and gave out virtually no information about Lehman’s holdings. “The Koreans were very receptive,” says this person. “But then he [Mr Fuld] tried to change the terms. The deal went away.” Lehman has declined to comment on Mr Fuld’s role in the talks.

Lehman’s insiders argue that KDB never tabled a formal offer and that the prolonged discussions prevented them from seeking other suitors. In their view, Lehman’s downfall was so fast that Mr Fuld had little time to look for alternatives.

Lehman did begin talks with potential buyers for all or part of its property book, including Blackstone and Colony Capital, another savvy player in the market. Last week the bank said that it planned to sell its $4bn UK portfolio to private equity group BlackRock – while providing 75 per cent of the financing – but found no takers for other holdings.

It also initiated talks with several parties about its asset management business – its crown jewel, including Neuberger Berman . Carlyle, a private equity firm, was willing to buy the whole thing for about $7bn and give Lehman the right to buy it back, But Lehman held out for a better deal and spurned Carlyle’s offer, according to people familiar with the matter.

Last week, Mr Fuld tried a different tack, saying Lehman would try to sell a 55 per cent stake in the asset management arm and spin off $30bn of commercial property assets into a separate “bad bank” structure that would enable the rest of Lehman to survive. However, his efforts quickly came to be viewed as a last-ditch attempt to sell the entire bank.

When Lehman’s end did come, it was swift. As Hank Paulson, US Treasury secretary, and Tim Geithner, the president of the New York Fed, summoned the heads of some of the world’s largest banks to crisis talks on Friday, it did not take long for them to realise that Lehman was doomed.

Wall Street titans including Lloyd Blankfein of Goldman Sachs, Morgan Stanley’s John Mack and Merrill Lynch’s John Thain, huddled for hours in an attempt to devise a plan to buy $33bn of commercial assets from Lehman. The deal, reminiscent of the LTCM bail-out in 1998, was aimed at facilitating a sale of Lehman to Bank of America or Barclays of the UK.

But there was a snag: neither suitor was prepared to even table a bid for Lehman without a government guarantee that would have allowed the bank to continue trading until a takeover was completed. When Mr Paulson indicated that there would be no repeat of the intervention that helped JPMorgan Chase’s acquisition of Bear Stearns and enabled the government takeover of Fannie Mae and Freddie Mac, the giant mortgage financiers, Lehman’s game was up. Bank of America quickly announced it had entered merger discussions with Merrill Lynch, while Barclays withdrew from the race.

All that Lehman’s executives could do was embark on the grim ritual of a bankruptcy filing. It is impossible to say whether the bank could have escaped with its independence intact. Critics point to a string of poor decisions as a sign that Mr Fuld and his team were late to recognise the risks of the credit bubble and slow to respond when the crisis hit. Others argue that the bank’s relatively small capital base and wholesale funding model meant it was almost impossible to avoid a loss of confidence when the turmoil struck.

Strangely enough, it was presaged seven years ago by Mr Fuld himself. When asked, in an interview with the Financial Times, if Lehman’s then $7.2bn in equity was sufficient for an investment bank, he responded with a story about playing blackjack in Las Vegas three decades before.

A young Lehman bond trader at the time, Mr Fuld said he was playing for a few dollars a hand when he was joined by a high-roller. The man’s luck was terrible but every time he lost, he doubled his bet, impressing the younger Mr Fuld. “That’s the answer,” he thought. “Get enough capital and double up.” But as dawn neared and the high-roller’s losses mounted to several million dollars, Mr Fuld said he felt sick to his stomach as he realised the cost of taking a high-risk approach.

It does not matter how rich you are, Mr Fuld said. “You don’t have enough capital.” It is a lesson he has since had to relearn.

FROM ALABAMA TO A DOOMED SECOND ACT

For a generation of Wall Street executives, it was hard to follow accounts of Lehman Brothers’ eleventh-hour negotiations to sell itself without recalling the events that unfolded at the bank more than two decades ago. “I’m watching this with sad fascination,” a former Lehman partner said last week. “It’s like déjà vu, but for different reasons.”

Lehman lost its independence in 1984 following a bitter power struggle between its top two executives, Pete Peterson and Lewis Glucksman. While the feud, chronicled in Ken Auletta’s bestseller, Greed and Glory on Wall Street: The Fall of the House of Lehman, helped destroy the old Lehman, the careers of many of its stars, from Stephen Schwarzman and Edward Altman to Peter Solomon and Steven Rattner, continued to flourish.

Mr Glucksman, who died in 2006, appeared to win with the departure of his rival in 1983, only to be forced to sell his prize a year later to American Express, which merged the business with its own brokerage, Shearson. Mr Peterson went on to found Blackstone Group, the private-equity firm, together with Mr Schwarzman. Though Mr Glucksman left Lehman following its sale, one of his proteges, Richard Fuld, would become the man most responsible for reinvigorating the bank after its eventual spin-off from American Express in 1994.



Founded in Montgomery, Alabama in 1850 by German-Jewish immigrants, Lehman Brothers started life as a general store (pictured left), branching out to trade in cotton. The US civil war disrupted the southern economy, prompting Emanuel and Mayer Lehman to move north to New York and venture beyond cotton to other commodities and, eventually, securities.

By the early 1900s Lehman was helping corporate American stalwarts Sears, Roebuck and F.W. Woolworth raise capital. Herbert Lehman, scion of the founding family, succeeded Franklin Delano Roosevelt as governor of New York in 1933.

When the US government forced financial institutions to choose between commercial banking and securities in the 1930s, Lehman opted for the latter.

The bank rose to become one of Wall Street’s most powerful institutions. Though it always possessed a stable of talented bankers and traders, the bank’s emphasis on individual initiative seemed to invite dissent among senior executives, Mr Auletta wrote. Indeed, Mr Peterson rose to power following a boardroom battle that led to the removal in 1973 of his predecessor, Fred Ehrman.

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