Lehman CEO Dick Fuld: Villain or Victim?

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I watched most of yesterday’s House Oversight Committee’s hearing on the collapse of Lehman Brothers. The star of the show was Lehman’s Chairman and CEO Dick Fuld, who Rep. Mica announced was playing the role of the “villain,” but Fuld preferred to play the victim.

The “long, hot summer of challenges” I predicted Fuld would face in “The Two Faces of Lehman Brothers,” culminated in the largest bankruptcy filing in U.S. history shortly after midnight on the September 15 Harvest Moon.

Mercury turned retrograde on September 24, conjoining Fuld’s natal Jupiter in Libra, reflecting legal issues (Jupiter) over what he had communicated (Mercury) about Lehman. Fuld and other key Lehman executives are the subject of probes by the FBI, along with criminal prosecutors from Brooklyn, Manhattan, and the New Jersey attorney’s office, to determine if Lehman misrepresented the firm’s financial health to investors. (New Jersey lost $116 million after investing $180 million in a Lehman stock offering in June.)

Most of the Committee’s questioning focused on the $450 million compensation Fuld received from Lehman since 2000; Fuld insisted the amount was closer to $350 million since the bulk of his compensation for 2007 consisted of Lehman shares that were wiped out in bankruptcy. Fuld didn’t make any new friends on the Committee when he stated that it was “pay for performance.” Committee members cited internal emails that revealed Lehman agreed to pay just over $23 million to three executives a few days before the company collapsed.

As he’s done in prior company conference calls, Fuld “took responsibility” for Lehman’s demise, but acted like a victim as he ran through a laundry list of unnamed people he believed conspired to destroy the firm. Fuld’s natal Mercury is in Aries opposite Neptune in Libra. When challenged, he denied he deceived investors about Lehman’s financial situation. In questioning, Fuld couldn’t recall an internal memo critical of Lehman’s real estate exposure, or having dined with Treasury Secretary Paulson.

On September 9, JPMorgan (JPM) who was Lehman’s clearing bank, demanded that Lehman turn over $5 billion in additional “easy to trade” collateral to cover loans its clients had with Lehman. This was on top of the $5 billion collateral JPMorgan requested from Lehman on September 5.

Having listened to Lehman’s hastily conveyed conference call the next morning to preannounce an estimated $3.9 billion loss, Fuld and CFO Lowitt made it sound as if all could be cured if they laundered all their bad assets in the SpinCo. Fuld said this would allow Lehman “to emerge as a clean company.”

A “run on the bank” went in full swing on September 11, as hedge fund redemptions began in earnest. This led to warnings by the ratings agencies that Lehman would face a debt downgrade if the firm failed to raise new capital. Lehman’s cash management system crashed attempting to keep up with customer redemptions.

The Federal Reserve Bank of New York held a meeting on the evening of September 12 with executives from several big banks to facilitate a deal to buy components of Lehman’s holdings. Lehman borrowed $30 billion from the Fed that it paid back the following day. As Fed-facilitated talks continued through the weekend, Barclays (BCS) and Bank of America (BAC) said they couldn’t buy Lehman without government financing. At yesterday’s hearing, Fuld said: “I believe we were in the same position as Merrill Lynch.” Merrill Lynch (MER) CEO Thain’s quick action to get Bank of America to buy Merrill Lynch gives credence to Fuld’s statement. Because Merrill has retail branches, Bank of America no doubt saw them as more valuable than Lehman.

The Federal Reserve is now claiming it didn’t believe it had a mandate to backstop Lehman on its own, yet 48 hours later on September 16, the Fed invoked Section 13.3 of the Federal Reserve Act to lend up to $85 billion to AIG. In Congressional testimony last month, Fed Chairman Bernanke said the reason why the government didn’t save Lehman was because the firm “had plenty of time” to raise capital and take the actions necessary to remain solvent. Unfortunately no one has asked Chairman Bernanke why the Fed took swift action to keep Morgan Stanley (MS) and Goldman Sachs (GS) afloat by allowing them to become commercial banks.

The former CEO of Goldman Sachs, Treasury Secretary Paulson claimed saving Lehman would “cost taxpayers money.” Lehman’s collapse created a global contagion that led to the $700+ billion bailout TARP to attempt to cover up the mess. Barclays ended up buying most of Lehman’s North American business for $1.54 billion.

Hank Paulson and Dick Fuld were born one lunar month apart, with their Moons in defiant and erratic Aquarius. Both have Mercury in Aries opposite Neptune in Libra. What they say in public can conflict with what they’re doing behind the scenes, but they wouldn’t view that as being unfair or deceitful. In fact, they would tend to believe their conflicting behavior is “for the greater good.”

With his Sun in Taurus challenging his Mars and Pluto in Leo, Fuld remained resistant to change, the arrogant and prideful CEO who lead Lehman all the way to bankruptcy (Pluto). With his Venus in Taurus, Fuld stubbornly refused to realistically write down Lehman’s $32.6 billion commercial real estate portfolio that several banks reviewed and believed were up to 35% overvalued.

NOTE: Some of the background information leading up to Lehman’s bankruptcy was obtained through reading “The Two Faces of Lehman’s Fall” in the October 6, 2008 Wall Street Journal.

Other posts not linked to above that I wrote about Lehman:
“Will Barron’s Like Lehman in August?” (June 18, 2007)
“Lehman Could Still Follow The Bear” (April 11, 2008)
“Federal Reserve Likely to Save Lehman” (August 21, 2008)

Dick Fuld: April 26, 1946 time unknown New York, New York
Hank Paulson: March 28, 1946 time unknown Palm Beach, Florida

No Disclosures.

2 comments:

Kohl Girl said...

What are your thoughts on this article on Iceland's bankruptcy?

http://news.yahoo.com/s/ap/20081007/ap_on_re_eu/eu_iceland_meltdown

Anonymous said...

Fuld (and other greedy execs) should give back 99% of the money they stole from their shareholders. Executives of public companies should be remunerated based on long term performance - this way they can't "cook the books" for their own benefit. American financial systems suck big time and really only reward the crooks.

Americans need to wake up and quit being so stupid!! The average IQ in the US is definitely plummeting. Must be the crack that everyone is smoking....