Lehman did a persuasive imitation of a firm that’s about to go out of business today.
Never mind that the company has been insisting for seven months that it has plenty of capital, that its balance sheet is strong, that its stock is violently undervalued, that it has myriad options for raising new capital, etc. The market isn’t buying it, and with the buyer of last resort–Korea–reportedly ending talks, Lehman’s equity market value plunged 45%, to below $6 billion.
Who’s fault is this? One man’s: CEO Dick Fuld.
This isn’t a Bear Stearns-type situation, where CEO Alan Schwartz and others took too much risk but then got blindsided by fleeing creditors who put the firm out of business before Alan, et al, knew what hit them.
This is 7 months after Bear Stearns–after the opening of the Fed window, after public urgings from Treasury head Hank Paulson to please raise more capital, after the scapegoating of senior managers like Erin Callan, after dire warnings from Nouriel Roubini, et al, after Merrill Lynch and other firms bit the bullet and sold most of their problems, after months of evaluating perhaps a half-dozen options…
This, in short, is anything but the sucker punch that knocked out Bear Stearns. Lehman’s current situation is the result of either a calculated gamble or sheer denial by the CEO, either of which looks as though they might destroy the firm.
For the past six months, CEO Dick Fuld has had many options open to him:
- Merging with a larger firm
- Selling a stake
- Selling crappy mortgage assets
- Selling Neuberger Berman or other parts of the firm’s asset management business
- Creating a “bad bank”
- Any combination of the above
Any of these options could have worked–had the firm pursued it aggressively and quickly. Instead, Lehman appears to have simultaneously pursued all the options at once…and consummated none of them. And as each successive option falls through, the others become less and less likely. Would you buy a stake in Lehman if even cash-rich Korea couldn’t get comfortable with the idea?
Perhaps Lehman failed to save itself because it couldn’t (the Fannie/Freddie situation). Or, perhaps, if press reports are accurate, it failed to save itself because Dick Fuld just couldn’t stomach the idea of selling out in a “fire sale.”
If it was the latter, and Lehman goes belly up, shareholders and employees only have one man to blame. A man who walked into the casino, bellied up to the blackjack table, and bet the firm.
For Dick Fuld’s sake, here’s hoping he has an ace up his sleeve.
See Also: Fuld Fiddles While Lehman Burns
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