Image: Richard Fuld
Virginia Mayo  /  AP
Chief Executive Richard Fuld said in a statement that removing Gregory from the COO job was "one of the most difficult decisions either of us has ever had to make."
updated 6/12/2008 7:55:26 PM ET 2008-06-12T23:55:26

The hope at Lehman Brothers is that a management shakeup Thursday will contain the damage of a stunning quarterly loss — yet some on Wall Street fear this is one more step toward a more dramatic outcome for the embattled investment bank.

The ouster of Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory was an attempt to quell investor anger that Lehman’s leadership has failed them. But, with a four-day stock plunge that wiped $4.5 billion from the investment bank’s market value, it was unclear if the upheaval will be enough to satisfy critics.

“These people deserve to be fired,” said Dick Bove, an analyst with Ladenburg, Thalmann & Co. “Their mistakes cost their shareholders billions of dollars in wealth.” Lehman shares fell 4.4 percent Thursday to $22.70 and are down 30 percent this week. The decline is a blow to investors who bought into a stock offering at $28 earlier this week — including BlackRock Inc. and former AIG chief Hank Greenberg.

Richard Fuld, who took the company public in 1994, has kept a low profile in recent days by refusing interviews and commenting only through a statement about the dismissals. There is growing speculation that Fuld — the Street’s longest serving CEO — might scramble to find a major outside investor or negotiate a sale to avoid his own demise by Lehman’s board.

Names from private-equity firm Blackstone Group Inc. to global bank HSBC Holdings PLC have been bandied about as possible suitors should Fuld want to arrange a buyer, though none are commenting on the possibility. Most analysts are confident that Lehman can survive on its own without a suitor, given the underlying strength of its business.

And while Lehman might have bought itself some more time by shaking up its top ranks, the question remains how much it has left.

“I think they have a few options, but they are becoming more and more limited as the stock is pressured,” said Matthew Albrecht, financials analyst for Standard & Poor’s. “It is hard to rule anything out at this point. Confidence in the firm is the paramount issue, and if your counterparties and clients don’t have confidence than you can’t do business in this market.”

In Washington, Sen. Richard Shelby of Alabama, the Senate Banking Committee’s senior Republican, said “I hope that Lehman comes out of the storm OK.”

Video: What’s next for Lehman?

“It’s very interesting in that Lehman Brothers ... keeps assuring everyone that they’ve got adequate capital and then they go to the market to get more capital,” Shelby said in a telephone interview. “They’re saying one thing and doing another in some sense and that has alarmed some people.”

Confidence in the company eroded after it pre-announced a nearly $3 billion loss for the second quarter and unveiled a plan to raise $6 billion of fresh capital. Callan spent Monday trying to convince analysts that Lehman’s books were in order and that the fresh dose of capital would allow traders to pursue new opportunities. But her pep talk failed and shares began to plummet toward a record low.

The uncertainty was compounded by the near-collapse of Bear Stearns under the weight of similar rumors last March. The Federal Reserve later stepped in to negotiate the investment bank’s sale to JPMorgan Chase & Co.

The company has been under intense pressure of late, particularly from short seller David Einhorn of Greenlight Capital, who has been an outspoken critic of the firm’s financial health and its public disclosures.

Einhorn declined to comment about the ousters.

Callan and Gregory join a long list of executives who have lost their job since global banks and brokerages began writing down nearly $300 billion of bad investments stemming from bad bets on mortgage-backed securities.

Others who have lost their jobs include Merrill Lynch & Co. CEO Stanley O’Neal, Citigroup Inc. CEO Charles Prince, and Morgan Stanley co-President Zoe Cruz.

Callan will remain with Lehman in its investment banking division, where she previously ran a group that catered to hedge funds before taking the CFO spot last September. Gregory, who has been with Lehman for more than two decades, will also remain with the firm in an undetermined position.

Herbert McDade, 48, will succeed Gregory. He was previously the global head of the company’s equities division, a position he has held since 2005. Ian Lowitt, 44, the current co-chief administrative officer, will become Lehman’s new CFO.

A spokesman for Lehman would not comment on the changes to Lehman’s top ranks.

However, Chief Executive Richard Fuld said in a statement that removing Gregory from the COO job was “one of the most difficult decisions either of us has ever had to make.”

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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