Lehman's Fuld still has support, for now

By Dan Wilchins - Analysis

NEW YORK (Reuters) - Dick Fuld has piloted Lehman Brothers Holdings Inc through turbulent waters, and although he still seems to have backing inside the company, some investors are starting to wonder if he will soon walk the plank.

Lehman's LEH.N shares have fallen 23 percent over the last week after the bank said it expected to record $3.7 billion of writedowns and post a $2.8 billion quarterly loss. The bank still has an estimated $60 billion of mortgage assets, which exceeds the firm's net worth as measured by shareholders' equity.

The company's shares trade below their accounting value, implying that investors see more writedowns coming.

Amid this crisis of confidence, Lehman demoted Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory.

Last year, top lieutenants at rival banks Citigroup and Merrill Lynch & Co lost their jobs. Their bosses, Charles Prince and Stan O'Neal, eventually followed them out the door.

Some investors wonder if Fuld is next.

"He's gotten rid of a rook and a bishop, but unless things turn around, sooner or later they're going to go after the king," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, which does not own Lehman shares.

Fuld, who has worked at Lehman since 1969 and been chief executive since 1993, still has tremendous support inside the fourth largest U.S. investment bank, said Brad Hintz, analyst at Sanford C. Bernstein and a former Lehman CFO.

"No one in that company has lost confidence in Dick Fuld," Hintz said.

The firm has faced some tough times during that four-decade stretch. Trading losses in the early 1980s forced the bank to sell itself to what was then known as Shearson/American Express, a unit of American Express Co (AXP.N).

When Lehman was spun off from American Express in 1994, it was saddled with massive debt, and generated most of its revenue from its low-margin, bond businesses. In 1998, the Russian debt crisis and Long-Term Capital Management collapse brought rumors of insolvency, an outcome Fuld was credited with staving off.

DIVERSIFICATION

Through these difficulties, Fuld has built the bond house into a diversified investment bank with respectable merger advisory and equity trading businesses. Between 2000 and 2007, the company's share price quadrupled.

But Lehman's shares have dropped precipitously this week, and before a 14 percent rise on Friday were at their lowest level in nearly six years. If Lehman, which is expected to post its first loss as a public company on Monday, is not able to turn itself, Fuld may find his support vanishing.

"Some of these CEOs have lasted longer than you would think," said Jim Huguet, co-chief executive at Great Companies LLC, which does not own Lehman shares.