MT Special: How it all went wrong at Lehman

An ex-Lehman banker talks frankly - and unrepentantly - to MT about the collapse of his former employer...

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Last Updated: 31 Aug 2010

‘I suppose it all started going wrong for us in February/March of this year. Lehman wasn’t exposed to any of the worst sub-prime stuff and other toxic assets. We didn’t carry it on the balance sheet, just traded it – ‘removal men not storage experts’, as they used to say. But we undid the good work when our boys in New York took the view that the dip in commercial property wouldn’t be severe or long, and so they loaded up. Bad news.

As the storm gathered, Bear Stearns went down – and then we were the next smallest. We had the equity issues, convertible issues and then another equity issue. We got into a massive fight with a hedge fund. Then we made a massive loss and writedowns and things started to look really bad. But Dick Fuld was convinced that he’d got us through the Russian crisis and he was going to do it again. He was convinced he could trade his way out and spent the summer trying to fix it. He consistently overplayed his hand, always after a better deal. This was typical of his style: sitting there, all powerful in an executive suite surrounded by those who licked his a**e all day long. Fuld was a cult leader but no walker of the floors. He didn’t live in the real world.

By September, the final throes were absolutely terrible. As soon I saw on the wires in the final week that we were talking to the Koreans, I knew we had had it. When you’re talking to the Koreans you are really scraping the barrel. Fuld wouldn’t take their offer but he had no Plan B. Nothing in his back pocket. Bank of America got Merrill but we were too much in the way of ‘moral hazard’. Paulson lost patience with him, and us, and let us go. (Pretty galling that he found $85 billion to bail out AIG the day after.) 

I got the call that it was all over on the Sunday evening. Going into administration is the most unpleasant business. I know I did it as an accountant years back. It’s a mix of extreme fear and disappointment. We all gathered together at 8.30am on the Monday and were told that we had no jobs by the end of the day. (One colleague was personally in the hole for £15,000 of expenses he’d run up on a trip to Hong Kong.) I knew I had to get another job fast.  I put the calls into headhunters and waited to pull the trigger.  

I had done well in banking. In the best years I made between one and two million but I’d financed myself quite conservatively. Although I don’t have a seven-figure mortgage like some colleagues, everything was up for grabs. I had a big house in Essex, two kids in private school and a very anxious and upset wife. The nature of the job is that I never see them get up or go to bed. I leave at 6 and was rarely home before 10. I even lost four days of my two-week summer holiday when I had to get back to the office. I’m not complaining – that’s the sacrifice you make.

I don’t doubt the validity and value of what I do. I give good advice and that is worth a lot. People ask me if I understood the full intricacies of some of those derivative products. Well, I did – but I didn’t understand how far they had got. Like all clever things, they just got pushed too far. That always happens in financial services.

They also want to know if I feel guilty. Well, all bubbles burst. The absurdities of the real estate market are no great advert for what we do. But politicians were complicit – they encouraged home ownership and make it feel like a citizen’s right. We’re not the only ones who made money. Clearly hair shirts are the current order of the day, but they’ll come off in time when someone finds a new way to make money. Ours is a creative industry.

The City is actually a transparent place: you make a lot of money for your company and you get paid a lot of money. Bonuses will have to be more long-term but any attempt to legislate on City salaries is doomed to failure. At Lehman we were good at that – we had the most aggressive stock-returning system out there. The employees owned – and lost – 30% of the company. I lost a very large sum of money, but we were bought by Nomura and I’m thankful for that.

And Dick Fuld? The mood is very ugly in the States at the moment – the American public won’t be happy until they see him in an orange boiler suit.'


This is an excerpt from the Black September feature in the December issue of MT, which should be hitting your desks this week...


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MT Special: How it all went wrong at Lehman
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