Lehman Brothers removes finance, operating chiefs

NEW YORK — The hope at Lehman Brothers is that a management shakeup Thursday will contain the damage of a stunning quarterly loss _ yet some on Wall Street fear this is one more step toward a more dramatic outcome for the embattled investment bank.

The ouster of Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory was an attempt to quell investor anger that Lehman's leadership has failed them. But, with a four-day stock plunge that wiped $4.5 billion from the investment bank's market value, it was unclear if the upheaval will be enough to satisfy critics.

"These people deserve to be fired," said Dick Bove, an analyst with Ladenburg, Thalmann & Co. "Their mistakes cost their shareholders billions of dollars in wealth." Lehman shares fell 4.4 percent Thursday to $22.70 and are down 30 percent this week. The decline is a blow to investors who bought into a stock offering at $28 earlier this week _ including BlackRock Inc. and former AIG chief Hank Greenberg.

Richard Fuld, who took the company public in 1994, has kept a low profile in recent days by refusing interviews and commenting only through a statement about the dismissals. There is growing speculation that Fuld _ the Street's longest serving CEO _ might scramble to find a major outside investor or negotiate a sale to avoid his own demise by Lehman's board.

Names from private-equity firm Blackstone Group Inc. to global bank HSBC Holdings PLC have been bandied about as possible suitors should Fuld want to arrange a buyer, though none are commenting on the possibility. Most analysts are confident that Lehman can survive on its own without a suitor, given the underlying strength of its business.

And while Lehman might have bought itself some more time by shaking up its top ranks, the question remains how much it has left.

"I think they have a few options, but they are becoming more and more limited as the stock is pressured," said Matthew Albrecht, financials analyst for Standard & Poor's. "It is hard to rule anything out at this point. Confidence in the firm is the paramount issue, and if your counterparties and clients don't have confidence than you can't do business in this market."

In Washington, Sen. Richard Shelby of Alabama, the Senate Banking Committee's senior Republican, said "I hope that Lehman comes out of the storm OK."

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"It's very interesting in that Lehman Brothers ... keeps assuring everyone that they've got adequate capital and then they go to the market to get more capital," Shelby said in a telephone interview. "They're saying one thing and doing another in some sense and that has alarmed some people."

Confidence in the company eroded after it pre-announced a nearly $3 billion loss for the second quarter and unveiled a plan to raise $6 billion of fresh capital. Callan spent Monday trying to convince analysts that Lehman's books were in order and that the fresh dose of capital would allow traders to pursue new opportunities. But her pep talk failed and shares began to plummet toward a record low.

The uncertainty was compounded by the near-collapse of Bear Stearns under the weight of similar rumors last March. The Federal Reserve later stepped in to negotiate the investment bank's sale to JPMorgan Chase & Co.

The company has been under intense pressure of late, particularly from short seller David Einhorn of Greenlight Capital, who has been an outspoken critic of the firm's financial health and its public disclosures.

Einhorn declined to comment about the ousters.

Callan and Gregory join a long list of executives who have lost their job since global banks and brokerages began writing down nearly $300 billion of bad investments stemming from bad bets on mortgage-backed securities.

Others who have lost their jobs include Merrill Lynch & Co. CEO Stanley O'Neal, Citigroup Inc. CEO Charles Prince, and Morgan Stanley co-President Zoe Cruz.

Callan will remain with Lehman in its investment banking division, where she previously ran a group that catered to hedge funds before taking the CFO spot last September. Gregory, who has been with Lehman for more than two decades, will also remain with the firm in an undetermined position.

Herbert McDade, 48, will succeed Gregory. He was previously the global head of the company's equities division, a position he has held since 2005. Ian Lowitt, 44, the current co-chief administrative officer, will become Lehman's new CFO.

A spokesman for Lehman would not comment on the changes to Lehman's top ranks.

However, Chief Executive Richard Fuld said in a statement that removing Gregory from the COO job was "one of the most difficult decisions either of us has ever had to make."

___

AP Business Writers Ernest Scheyder in New York and Marcy Gordon in Washington contributed to this report.

Comments

[watchTVgetSTUPID]

Financial institutions rewarded those who took risks and hid the fact that it was risky. As long as the returns were good, they were rewarded. Those who correctly assessed the risk were let go because the lower rate of return. Folks, we are not half way through the discovery phase, much less the fallout.

DUCK AND COVER

[MilwaukeeDan]

Don't worry, these folks will walk away with millions, their children will still attend the best schools. I never really understood the "markets", there are these trillions of dollars just floating around in space. I have always worked for manufacturing companies that produced products(machines) that made other products consumers needed. Too bad we "outsourced" the majority of our manufacturing to Asia. At least with manufacturing, you could see the products, they were real, not some paper from Wall St.

[nomadicexpat]

uhm is your manufacturing company publically listed? if so i imagine that an evil wall street firm underwrote and distributed those shares. i also imagine an evil firm makes markets in that stock so people can buy and sell it, and other firms act as brokers for those transactions.

has your firm ever expanded? or possible sunk money into R&D? if so, i suspect they've borrowed money in the capital markets. in which case an evil firm either loaned them money, or underwrote and distributed their debt. they also acted to facilitate the trade when the person who bought it needed to sell it to raise money for their own purposes?

does your manufacturing company keep any cash on hand? i suspect part is on deposit in an evil bank, but the majority will be with either an evil asset manager or managed in house. both the evil asset manager and the overpaid in house money manager will need to transact with someone the investments they intend to utilize for the cash balance?

does your company offer a pension plan? an evil asset manager probably manages those funds, with advice and liquidity provided by a host of evil investment banks in conjunction with an incompetent consultant.

do you have a 401k? some evil firm probably administers that, and then you have the choice of investments from evil asset managers. who again have to deal with...

.. well you get the idea

[wsblake]

The only people as despicable as the neocons are these obscenely greedy Amerikan CEOs.

[jerrypenguin]

How could a bit of cosmetic movement among our "social betters" even be considered news? The reality being, they don't get fired in the peasant sense. They are well provided for and provide for each other. It's almost like an elite communism. Wake me when any executive leadership faces big house time or the firing squad.

[dadw5boys]

I SMELL A COVER UP COMMING DOWN THE PIKE!!!!!

[TroubleNYC]

She was obviously let go of her position because of the sexism at the work place...

[Bukowski72]

They were just saying on CNBC that the bosses of firms don't
understand the risks their traders are taking. Sadly, way back in '98
Lehman fired John Succo for saying the same thing:


"The trouble started when John Succo, trading manager at Lehman
Brothers’ equity derivatives volatility desk, agreed to speak at an
investment conference sponsored by Grant’s Interest Rate Observer.


After discussing the pricing of risk and the correlation between
equity derivatives and the underlying stock market for a while, Succo
was asked a question. “I don’t think my boss is here, so I’ll address
that,” he responded. “I don’t think that the people running our firm,
our equity floor, have any idea of the things that we actually do, of
how we...(audience laughter) I’m serious...of how we hedge, the
products that we’re involved with, the amount of risk we take or the
lack of risk we actually take.”


He went on to describe a 26-year-old derivatives trader at a big bank
who believed that his senior management’s understanding of the risks
at the institution was “probably off by a factor of 10.” “And I think
that’s probably pretty accurate. I think as I said before, management,
if you’re making money, kind of leaves you alone until there is a
crisis situation. And I don’t think that’s a way to run a firm.”

[Paul]

Another victim of the sub-prime loan bubble.

Hope that golden parachute deploys....