| NEW YORK
NEW YORK Not long ago, when Lehman Brothers CEO Richard Fuld talked about "everyone's worst nightmare" he was referring to a massive fraud at French bank Societe Generale.
Just a few months later Fuld, a 30-year-veteran of Lehman who had ably steered it through near-death experiences like the Asian debt crisis of 1998, is living his own worst nightmare as the venerable investment bank stands on the verge of collapse.
How the 158-year-year institution came to this is a tale of hubris and overreaching -- and a big dose of bad luck.
Lehman's fall from grace was brutally fast. Until June, it had never even reported a quarterly loss as a public company.
As recently as March, Fuld was awarded a $22 million bonus for 2007 -- a generous pay package to be sure, but one that also reflected a year in which the bank's net profit had risen 5 percent to a record $4.2 billion.
But Lehman soon emerged as Wall Street's next domino as real estate loans and other toxic assets increasingly weighed on its balance sheet, especially after the collapse of Bear Stearns Cos Inc in March.
Still, few were willing to second-guess its 62-year-old chief executive.
"Fuld went wrong in not taking seriously enough the impairment of his balance sheet," said Charles Peabody, analyst at independent research firm Portales Partners.
"He had the typical hubris that any long-term CEO has: 'I built this thing, and it's got more value than the marketplace understands.'"
As the credit crisis worsened, Fuld was Wall Street's one seemingly teflon chief executive, keeping his job unchallenged even as CEOs fell at rivals like Bear, Merrill Lynch Cos Inc and Citigroup and as Fuld's own underlings including Chief Financial Officer Erin Callan were pushed out.
Lehman's board, which includes retired CEOs like Vodafone's Christopher Gent and IBM's John Akers, may have been too slow to challenge Fuld -- a former competitive squash player -- as its share price spiraled lower.
As recently as June, rival CEOs like Lazard's Bruce Wasserstein were still professing confidence in Fuld, nicknamed "The Gorilla" for his intimidating presence.
Fuld had endured in-fighting that led to the firm's sale to Shearson/American Express in 1984 and was running the firm when it was spun off in 1994.
This time, though, he was no match for the implosion of the mortgage boom on which he had staked the firm's fortunes.
Lehman, until recently Wall Street's fourth-largest investment bank, for years did a big business in originating mortgages, re-packaging them and selling them onto other investors.
Lehman was the top U.S. underwriter of mortgage bonds in 2007 and 2006, grabbing about 10 percent of the market.
But as the U.S. housing market went from boom to bust, it ended up being unable to unload many of the most toxic loans.
"Dick went wrong three to four years ago when Lehman bought these assets, now he's paying the price," said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon.
"I don't think he knew when he was investing in mortgages where this could lead, and how important confidence is."
At key junctures Fuld seems to have played a game of brinksmanship, refusing to accept offers that could have rescued the firm because they didn't reflect the value he saw in the bank.
As recently as August, Fuld may have had a chance to sell a 25 percent stake in Lehman for $4 billion to $6 billion to state-run Korea Development Bank, but by some accounts he balked, saying the offer was too low, the Wall Street Journal has reported.
Differences over price also thwarted talks to sell up to half of Lehman shares to China's CITIC Securities in August, the Financial Times reported.
"Dick Fuld really blew it," said William Smith, chief executive officer of Smith Asset Management in New York. "How many opportunities did he have to sell Lehman?"
"There's a possibility this stock could zero out," Smith said. "It happened under his watch."
(Reporting by Christian Plumb and Dan Wilchins; Editing by Ted Kerr)