Richard S. Fuld Jr., in his first public appearance since Lehman Brothers Holdings Inc. collapsed in September, said in a sworn testimony before a Congressional panel on Monday that while he took full responsibility for the failure of the company he led, he still believed all his decisions “were both prudent and appropriate” at the time. In a near three-hour debacle, Fuld was drilled by the Committee on Oversight and Government Reform in their investigation to uncover “regulatory mistakes and financial excesses” that led to Lehman Brothers’ file for bankruptcy. In a combative hearing that most believe depicted Lehman’s managers as irresponsible, top Lehman executive Fuld testified that he did not deceive the public about the state of the firm’s financial health — despite internal warnings, cited by lawmakers, that Lehman was in a state of near-emergency — nor did he overcompensate the firm’s top executives. Fuld said he believed until five days before filing bankruptcy that Lehman’s remained in decent health. He instead attributed Lehman’s downfall to outside pressures including lax oversight, short-sellers and even the Federal Reserve. He said Lehman Brothers might have survived had the Federal Reserve moved faster to help it borrow from the Fed, or allowed it to transform into a bank holding company — which Fuld said he tried to do in previous months, but was denied; unlike Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) who were allowed to quickly convert into bank holding companies after Lehman’s collapse. During the hearing, the House committee fired accusatory inquiries regarding executive compensation granted to Lehman’s employees during a time when the company was scrambling to stay afloat. According to a Wall Street Journal report, Lehman’s disclosed an agreement to pay a total of more than $23 million to three executives leaving the securities firm just days before it collapsed. US News’ Luke Mullins on Monday posted internal emails sent in June and distributed at the committee hearing to reporters. In one email, Judy Vale, a Lehman fund manager, expressed the need to reduce Lehman’s expenses. The email suggested that top management forgo bonuses. George H. Walker, global head of investment management, dismissed the mass email and wrote in a response that the issue was “hardly worth the Executive Committee’s time.” Fuld responded to Walker and said: “Don’t worry — they are only people who think about their own pockets.” Fuld and other executives face potential allegations of fraud, due to alleged misrepresentations of the bank’s health. In a separate email obtained by US News, Fuld recounted a dinner meeting with Treasury secretary Henry Paulson and noted that administration officials “want to kill the bad” hedge funds.” Lawmakers cited a Wall Street Journal article Monday that examined the lengths Lehman went to conceal its deteriorating financial condition in its final weeks. The article raised a number of questions, including whether Lehman executives knew but didn’t unveil the firms need to raise capital ahead of a critical Lehman conference call with investors on Sept. 10, just five days before it filed for bankruptcy protection. Lehman Brothers headed into the largest corporate bankruptcy in September after federal regulators declined to bail the company out; Lehman was one of the largest Wall Street investment banks in the mortgage space, and a collapse in the U.S. mortgage market helped push the i-bank into duress. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade. Editor’s note: To contact the reporter on this story, email [email protected].
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HousingWire Magazine: October/November 2022 HW+
This issue includes two big features our 2022 HousingWire Vanguard honorees and a power-packed list of the housing companies that made the Inc. 5000 list.