Dick Fuld, the chief executive who led Lehman Brothers to the largest corporate collapse in modern times, has defended the failed investment bank’s culture, insisting that it was a victim of wider market excesses and regulatory failings in his first public speech since the banking crash of 2008.
“It was all about team,” he told a conference in New York. “My people were in it together – and our clients knew it. There was no ... ‘It’s my account,’ no ‘I’m a star, so pay me.’”
Fuld, who was paid $485m (£317m) in salary, bonuses and options between 2000 and 2007, also attempted to respond to criticisms that Lehman had not been good at assessing risks. “Regardless of what you heard of Lehman Brothers’ risk management, I had 27,000 risk managers, because they all owned a piece of the firm,” he said, explaining that staff had owned more than 30% of the bank’s stock.
In the final months before the demise of Lehman, Fuld said the bank had been furiously attacked by hedge funds that were short-selling the firm’s stock – effectively betting that it would decline in value. “I will hurt the shorts, and that is my goal,” he raged, five months before the bank came crashing down.
The bank’s failure sent shockwaves around the global economy and, in its wake, Fuld was summoned to appear before Congress for what turned out to be a bruising encounter.
Referring to Fuld’s pay, the chairman of the House oversight committee, Henry Waxman, said: “You made all this money taking risks with other people’s money.”
Fuld told the Congress members: “Not that anyone on this committee cares about this, but I wake up every single night wondering, ‘What could I have done differently?’ This is a pain that will stay with me for the rest of my life.”
In early 2008, short-sellers believed the bank was vulnerable, in large part due to its exposure to complex credit products it had built, known as collateralised debt obligations, or CDOs. Critics have suggested such products were an important contributor to the debt bubble.
At the conference on Thursday, however, Fuld threw a different light on the causes of Lehman Brothers’ downfall. The crash, he said, “started with the government. The government pushed for non-qualified home ownership. The government clearly ... wanted everybody to fulfil their view of the American dream.” To this point he added the aggravating factors of low interest rates and easy access to credit for homeowners. Credit bubble indicators were also plain to see, he suggested, in ballooning growth in GDP and in the private equity and hedge fund sectors.
Among the highest-profile short-sellers to target Lehman in 2008 was the New York hedge fund Greenlight Capital, run by David Einhorn. At a hedge fund conference in May 2008, Einhorn had accused Fuld and his board of “accounting ingenuity”.
“How did this happen? The answer is that the investment banks outmanoeuvred the watchdogs ... As a result, with no one watching, the managements of the investment banks did exactly what they were incentivised to do: maximise employee compensation. Investment banks pay out 50% of revenues as compensation. More leverage means more revenues, which means more compensation.”
Einhorn is thought to have made substantial sums from bets on the downfall of Lehman.
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