Lehman's Choices

I've written 11 posts which include a "Lehman" label. The first was this one on April 7th of this year. In that piece, I wrote,

"Is it possible that only one, perhaps two investment banks- Goldman Sachs and Merrill Lynch- are now sufficiently diversely funded and large to avoid the ultimate negative consequence of their leverage- insolvency?

Maybe Lehman, for all its efforts, just still isn't sufficiently diverse, large, and long term funded. Maybe Morgan Stanley isn't, either.

You have to wonder if this is about to be an opportune time for Dick Fuld, Lehman's hardnosed CEO, to exit via a sale of his firm to a commercial bank.

Once Fed funding is off-limits again, what will Lehman's stock price do? For how long will investors really believe that an investment bank is safe, now that SEC Chairman Chris Cox noted that Bear Stearns lost slightly less than 90% of its liquid assets in one day last month?

Lehman still has significant exposure to mortgage loans. And Bear's experience demonstrates how quickly the loans from commercial banks, on which all brokers/investment banks depend, can be pulled.

Per my recent posts in the wake of the Fed's window opening to investment banks, I just don't see, long term, why any but perhaps the very best one or two investment banks can remain independent."

Fuld's claims that he never turned down an offer to buy Lehman are beside the point. Fuld should have been seeking a buyer by the Friday before the weekend that marked Bear Stearns' death.

How hard a knock on his noggin did Fuld require to see the end coming? In this post, written only a few weeks ago, I related John Gutfreund's comments on CNBC one mid-September morning. Significant among his remarks were these, which I reported in my post,

"Gutfreund was asked how Lehman's demise came about, and he said something to the effect,

"By the over-optimistic actions of the firm's CEO and his senior managers."

Pressed further, he allowed as how the firm was unrealistic, in this era and environment, to believe it could remain independent while grappling with its writedown problems. Gutfreund never used Fuld's name, but pointed out that Lehman had had months in which to gracefully sell itself before coming to Chapter 11.

It was refreshing to see a sensible, blunt Wall Street veteran avoid needless emotion and hysteria, while simply calling yesterday's events as he saw them. Nothing to be panicked about.

Rather, one company, Lehman, prolonging its own agony...."

Once again, I'm in good company. Gutfreund feels, as do I, that Fuld had plenty of time to see the end coming and sell Lehman to a commercial bank. He chose not to.

He now blames short sellers for destroying his firm. But, in truth, Fuld had at least a full month, post-Bear Stearns' demise, to arrange a sale of Lehman from a position of some strength.

Worse, he seems to have put his executives, especially Erin Callan, the short-timer Lehman CFO, up to allaying fears among counterparties and investors as to Lehman's solvency. While publicly proclaiming that Lehman had no need for more capital, privately, the firm's senior executives were constantly discussing plans to raise needed additional capital throughout this past summer.

Yes, Lehman, as run by Dick Fuld, had ample opportunity to end its life in a different manner than it did.

We'll never know for certain, but it's a fair bet that Dick Fuld's ego cost all Lehman's shareholders, including many then-current, and past employees a considerable chunk of their assets. How much might have a commercial bank- foreign or domestic- paid for a still-breathing Lehman in April of this year?

A lot more than the zero value remaining shareholders realized by the firm's bankruptcy. And, for that, you have to blame Dick Fuld.