One year ago tomorrow, the world found out that Lehman Brothers’ filed for bankruptcy.
It would be absolutely impossible to overstate the significance of this event, which impacted virtually every Wall Street firm in one way or another.
Lehman was one of the oldest and most-respected firms on Wall Street, and its bankruptcy sent shivers through the entire financial industry and the stock markets.
I distinctly remember the headline of a New York Times article at the time that read, “Nation’s Financial Industry Gripped by Fear” – and it was right.
I’ve been covering financial news for two decades, but the memories of that weekend will always be among those that stand out in my mind. Among the most vivid are those of speaking with some of the key players who were involved firsthand as these historic events unfolded.
They Looked Like Zombies
For example, John Thain, then CEO of Merrill Lynch, told me that he was sitting at the table at the New York Fed along with Tim Geithner, Hank Paulson and the Lehman people. He said, “I looked at them, and they had been up all night. They truly looked like zombies. And it was at that moment that we all realized, ‘Oh my God, these guys could go bankrupt. They could actually file, and if they do, it's going to impact all of us.’ ”
Prior to that, there had been a lot of bickering over possible solutions, government assistance, buyouts and mergers, etc. But on that day, Friday, September 12, it sunk in that a Lehman bankruptcy would have ripple effects, and the key players realized they needed to stop bickering and try to figure out answers.
The Dramatic Change in Events
Among the most remarkable stories I heard were those from a senior lieutenant to Dick Fuld, CEO of Lehman Brothers. This person was in the room that Friday when Fuld was on the phone with Ken Lewis, head of Bank of America , and he heard Fuld say to Lewis, “Ken, I'm looking forward to being your partner. This is going to be a great merger.”
He hung up the phone and talked to this lieutenant about Lehman doing a deal with Bank of America. At that point, it appeared Lehman would avoid bankruptcy.
The next morning, following late-night meetings at the New York Fed, Dick Fuld called Ken Lewis. Lewis’ wife, Donna, answered the phone and said Ken couldn’t come to the phone. Fuld was still thinking he had a deal with Ken Lewis, but Lewis’ wife insisted that he would have to call Fuld back.
On Sunday, the clock ticking away, it becomes clear to Dick Fuld that Ken Lewis has changed his mind and is going to do a deal with Merrill instead. The next day, Lehman filed for bankruptcy.
I spent that whole weekend on the phones talking to those involved, both directly and also those in the financial industry. Everybody I spoke with said to me, “Maria, this is different. This is unbelievable. This is the worst thing I've ever seen.” A lot of people talked to me off the record just telling me how severe it was.
On Sunday night, we got word that Merrill was going to be sold to Bank of America and Lehman was likely to file. Monday morning, I went to the press conference where Merrill and BofA announced their merger. After that, I did an exclusive interview with Ken Lewis.
One memory that stands out from that press conference was John Thain’s face. His expression said it all. It was obviously a very emotional and sad day for him. He didn't take the job to sell Merrill Lynch. He took the job to grow the firm, so this was not what he expected or wanted.
Lehman’s bankruptcy alone would have made 2008 an extraordinary year, but as we all know, the list of bailouts, mergers and bankruptcies is much longer than that. In addition to Bank of America and Merrill Lynch, you have Bear Stearns, Northern Rock, Wachovia , Citigroup , AIG , Fannie Mae , Freddie Mac , and more.
One year later, the financial services industry has fewer players, and it operates differently now with less leverage, diminished compensation and lower risk tolerance. More reforms are still being discussed.
The buildings along Wall Street may look similar to last year, but make no mistake, the landscape has changed dramatically.
From Those Who Lived It
If you joined me for last night’s special “One Year Later: Reflections From The Street,” you heard from many of the folks who watched these events unfold right before their eyes.
This week, I’ll be sitting down with Bob Diamond of Barclays and Larry Fink of BlackRock to get their perspective on the Lehman’s collapse and its impact on the financial industry one year later. So stay tuned, I’ll share the highlights with you right here in my blog.
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