Tough Fight for Chief at Lehman

Richard S. Fuld Jr. was fed up being Wall Street’s punching bag.

It was early August, and Lehman Brothers , the venerable investment bank he has run for the past decade and a half, was once again under siege in the stock market.

“In the 28 years you’ve known me, do you know anyone who bleeds more for Lehman’s shareholders, clients and employees?” Mr. Fuld complained to a friend.

Mr. Fuld, 62, likes to say he bleeds green — Lehman’s corporate color (and, as it happens, the color of money).

But now it is Lehman itself that is hemorrhaging, as its stock price spirals down day after day.

Dick Fuld
Dick Fuld

Mr. Fuld, the company’s chairman and chief executive, is searching for a way to stanch the wound. But on Wall Street, there is a growing sense that Lehman, one of the nation’s oldest and largest investment banks, may never be the same again — if it survives as an independent firm at all.

On Wednesday, nervous employees inside Lehman’s Times Square headquarters huddled around computer screens to watch the company’s stock price flicker by as Mr. Fuld mapped out his plans. In a conference call with investors and analysts, Mr. Fuld pledged to shrink Lehman Brothers in order to save it.

The company announced that it planned to split itself into a “good” bank and a “bad” one to hive off worrisome mortgages and real estate; sell most of its investment management division; and cut its dividend to shareholders.

Lehman also said that it expected to post the biggest quarterly loss in its 158-year history. By the end of the day, Lehman’s stock price had fallen an additional 7 percent. The decline left the shares down 55 percent for the week.

It is a remarkable turn of events for Mr. Fuld, who personifies his firm unlike any other chief executive on Wall Street. He joined Lehman as an intern in 1969, worked his way to the top and, last year, earned more than $40 million. But Lehman, a big player in the bond markets, got itself into trouble by financing real estate, including subprime mortgages. Now, its future seems uncertain once again.

“I think it’s possible he could be pushed out any day,” said William T. Fitzpatrick, an equity analyst with Optique Capital Management. “You’ve got a stock that’s basically in free fall.”

Lehman executives insist they and the company’s board stand behind Mr. Fuld, who has pulled Lehman back from the brink time and again. But Mr. Fuld has been slow to sell troubled assets and secure the financial lifeline many analysts say Lehman needs, steps that become more difficult every time Lehman’s stock falls further.

Lehman’s price is never far from Mr. Fuld’s mind these days. At his desk, he looks over at his Bloomberg terminal intermittently. The stock’s 45 percent nosedive on Tuesday persuaded him to announce early the company’s third-quarter earnings and reorganization. The stock’s dive this summer persuaded him to pay employees part of their bonuses early. And analysts say that if the stock does not turn around, it could cost Lehman its independence — and Mr. Fuld his job.

Lehman and its chief have been in the hot seat since June, when the company announced its first loss caused by bad mortgage investments. Mr. Fuld raised capital for the firm and replaced several senior executives, but those efforts did not appease investors.

Lehman executives complain that they have been singled out by hedge fund investors that are short selling — or betting against — their stock, and Mr. Fuld has called senior executives at competitor banks demanding that their employees stop criticizing Lehman.

People who know him say the battle is wearing on Mr. Fuld but that he intends to fight it out.

“I think any person in Dick’s position would be very frustrated by what’s transpired,” said Jerry I. Speyer, chairman and co-chief executive of Tishman Speyer. “It’s like a 40-foot sailboat in the midst of a 150-mile-per-hour hurricane.”

Mr. Fuld has been here before. In the past 40 years, Lehman has gone into crisis mode at least four times, but always survived in some form. The past struggles seem to embolden Mr. Fuld about his prospects this time around.

“We’ve been through adversity before, and we always come out a lot stronger,” Mr. Fuld said on Wednesday’s conference call.

Still spoiling for a fight

In 1984, Mr. Fuld was the head of the fixed-income division when Lehman, then a private partnership, was forced into the arms of American Express. Mr. Fuld’s mentor, Lewis Glucksman, was the chief executive at the time, and Mr. Fuld was one of the executives most opposed to the sale, and April 10, 1984 — the date of the sale — became what he would call the darkest day of his career.

In the 1980s, Mr. Fuld was viewed within the firm as a trader’s trader, with an athletic physique, intense focus and penchant for profanity. It would have been rare to see him smile, and he did not seem to be on the chief executive path, said Ken Auletta, the author of a book about Lehman’s downfall in the 1980s called “Greed and Glory on Wall Street.”

One colleague from the 1970s remembers a time that Mr. Fuld had told him to keep an eye on a co-worker. Mr. Fuld did not mince words, grabbing the colleague by the arms and saying, “If I ever see him walking the halls of this building and you’re not within 12 inches of him, you’re fired.”

Mr. Fuld stayed on at Lehman in the 1980s, even as others left. He viewed the sale as a betrayal, and tried lead a mass defection to join forces with another brokerage firm, to no avail.

In 1994, when Lehman Brothers was spun off from American Express, Mr. Fuld was at the helm.

Mr. Fuld had the support of Lehman’s workers, recalls Thomas Schick, an executive vice president at American Express.

“He has that one crucial element of leadership that is most important — that is the capacity to make people want to follow him,” Mr. Schick said.

In 1998, Lehman ran into trouble after the collapse of the hedge fund Long Term Capital Management. At that time, Mr. Fuld publicly blamed rumors for the company’s problems and complained to the Securities and Exchange Commission.

Lehman executives argue that that rumors are at the heart of the problem this time around. The firm’s ousted chief financial officer, Erin Callan, engaged in a high-profile tussle with the hedge fund manager David Einhorn this spring, when he publicly criticized the company.

Soon after, Mr. Fuld shuffled his management team, and Lehman gave out plastic swords to some employees, sending the message: go to battle. He gave a speech over the bank’s internal speaker system in June to rally the troops.

“Einhorn didn’t lose us $2.8 billion; we lost it,” Mr. Fuld said, referring to the hedge fund manager who has been shorting Lehman’s stock. He added: “Now let’s get out there and beat” them.

Friends and competitors say Mr. Fuld is still spoiling for a fight.

"He is as feisty as ever, but there is no question this is wearing on him as it would wear on anyone,” said John J. Mack, the chief executive of Morgan Stanley.