NEW YORK (Reuters) - Long regarded as one of Wall Street’s top bosses, Dick Fuld’s reputation has taken a beating.
The Lehman Brothers Holdings Inc chief executive is battling to keep the 158-year-old firm afloat amid the worst global financial crisis in decades. At the same time, Fuld, the survivor of numerous market slumps, hopes once again to prove the naysayers wrong.
On Wednesday, Lehman posted a $3.9 billion third-quarter loss after writing off nearly $8 billion of risky mortgage and real estate assets, its second straight quarterly loss. The firm also is selling 55 percent of its asset-management unit and planning to spin depressed assets off its books.
The moves may revive Lehman or simply give Fuld time to sell the company. Either way, Lehman’s struggles this year have seriously tarnished his 15-year tenure as CEO.
“A CEO’s reputation inevitably is tied to the price of the common stock, and Lehman’s has taken a big hit,” said Bruce Foerster, who served under Fuld at Lehman before founding South Beach Capital Markets in 1994.
Lehman shares tumbled 88 percent this year to a decade low. The market now values the company at less than one-third of its book value.
Fuld has won a reputation as a survivor and top-notch leader since coming to Lehman as a trader 30 year ago. He endured in-fighting that led to the firm’s sale to Shearson/American Express in 1984 and was running Lehman when it was spun off — undervalued and unwanted — in 1994.
During the Asia debt crisis of 1998, he fended off speculation that Lehman was insolvent. He went on to transform a domestic bond house into a diversified investment bank with businesses around the world.
Nicknamed “the gorilla” for his intimidating presence, Fuld was considered one of Wall Street’s ablest CEOs. Lehman’s market value surged from about $1 billion when it was spun off from American Express, to $45 billion at its peak in February 2007.
“He is one excellent leader. He understands how to keep a team of somewhat arrogant, abrasive and talented people together, and keep them all moving in the same direction,” said Brad Hintz, a Sanford Bernstein analyst and a former Lehman chief financial officer.
Fuld won praise last year for avoiding significant losses despite running the largest mortgage business on Wall Street. He moved quickly to shut down home lending businesses and cut thousands of jobs.
He was also one of Wall Street’s best paid executives. In most years, he took home bonuses on a par with those paid at Goldman Sachs, a much larger firm. Last year, he received $22 million in compensation.
But the credit crunch caught up with Lehman this year, when its out-sized exposure to mortgages and commercial property fueled mounting losses. When rosy statements from Fuld and other executives were followed by the losses, their credibility was hurt.
In April, Fuld told the annual shareholders meeting that “the worst (of the financial crisis) is behind us,” and predicted an economic rebound “in a number of quarters.”
Two months later Lehman reported its first-ever loss as a public company. Fuld told investors the company remained strong.
“We’ve made a number of changes. It’s now my job to make sure we execute,” he said. “I have said many times that I very much believe that with this franchise’s strength and power we can go it alone.”
During the first quarter, when most rivals were shrinking the balance sheet, Lehman boosted risk and took on more assets. As markets deteriorated this summer, Lehman found itself stuck with assets that were hard to sell.
Critics such as hedge fund manager David Einhorn questioned its financial health. Lehman executives dismissed speculation that the firm needed more capital, only to announce plans for another $6 billion capital raising in July.
More recently the bank stayed mum as rumors swirled that Fuld was meeting with numerous potential buyers, such as Korea Development Bank. Analysts complained that Fuld could have struck a deal months earlier, but refused to lower his price, forcing Lehman into a more desperate position.
“This board and CEO are committed to a program that is at odds with investors’ and employee views,” veteran Ladenburg Thalmann analyst Dick Bove said Monday. “Clearly the company does not believe that it has a serious balance sheet problem.”
Pressure built on Lehman this week as credit default insurance prices surged and the stock plunged by one-half on Tuesday. On Wednesday, eight days earlier than scheduled, it announced plans to shed risky assets and raise money.
The deals could fall through, and if they are executed, may not be enough to preserve Lehman’s independence. Markets also may deteriorate, adding to the firm’s losses.
Even so, admirers are not counting out the embattled CEO. “Fuld has survived a lot on Wall Street,” said Walter Todd, portfolio manager at Greenwood Capital and a former banker at Lehman. “He is one tough cookie.”
Editing by Jeffrey Benkoe