Five years ago yesterday, Lehman Brothers declared bankruptcy, closing the doors on a 158 year-old business. All the while, its CEO, Dick Fuld, seemed incredulous that disaster had fallen on his watch.
Perhaps he should not have been.
In 1985 New Yorker writer Ken Auletta published his book Greed and Glory on Wall Street: The Fall of the House of Lehman. At the time it was notable for chronicling the story of two massive egos at the bank whose, clash ultimately led to it getting swallowed by Shearson/American Express in 1984.
Working tirelessly in the background of this story is a trader named Dick Fuld, the man who would ultimately become CEO of Lehman Brothers after it was spun off from American Express in the 1990s.
At the time of Auletta’s writing, Fuld was the head of trading at Lehman, and Auletta’s characterization of him as a selfish, tone-deaf, inept manager in the 1980s eerily foreshadows the bankruptcy of Lehman Brothers in 2008.
On page 158, for example Autletta recounts a board meeting in which Fuld was asked, simply, how the bank’s trading operations had made money over the previous five years, and how they were expected to do so over the next five years.
Fuld couldn’t answer, and that naturally upset the board.
“I seemed that Dick didn’t respond to the question and maybe didn’t have handle on the business,” said one board member. Another feared Fuld had been thrust into a management position to early. More worried that he had no strategy.
Lehman’s co-CEO at the time, Lew Glucksman, the man that had elevated Fuld to head of trading, blamed Fuld’s poor communication skills saying, “Very few board members could understand Dick when he was talking.”
It only gets worse later in the book. As the fateful merger with Shearson/American Express approached, Lehman started losing money on its trading operations. Specifically, Auletta writes, from October 1983 to March 1984 Lehman’s traders lost $US30 million.
Auletta says he came to that number by examining Lehman’s books, but Fuld told him it was off the mark. “Maybe $US5-$10 million were trading losses,” Fuld said, “Most of it was due to no generation of income.”
Auletta figures that by Fuld’s “novel logic” managers didn’t need to take overhead costs or reduced revenues into account when calculating the profitability of a bank’s trading operations. It was about all the trades themselves.
“I take it as a personal failure to lose money,” Fuld told Auletta.
Pick up Greed and Glory on Wall Street: The Fall of the House of Lehman here, or read Auletta’s shortened version of the story from a 1985 issue of New York Times Magazine here. Both of them are pretty epic.