Capitol Grilling for Lehman CEO
Fuld Says Crisis 'Overwhelmed' Him

By Annys Shin
Washington Post Staff Writer
Tuesday, October 7, 2008

Former Lehman Brothers chief executive Richard S. Fuld Jr. told a skeptical House committee yesterday that he tried various ways to save the 158-year-old investment banking firm, including making a plea for help to federal regulators, but in the end was "overwhelmed" by events.

Lawmakers, in turn, questioned Fuld about why he for years failed to rein in risky investments, paid huge severance packages to departing executives even as the company was seeking federal help, and told analysts that the company's balance sheet was strong five days before it filed for bankruptcy.

"I wonder how he sleeps at night," Rep. Elijah E. Cummings (D-Md.) said.

Fuld told lawmakers he hasn't been sleeping well at all.

"Not that anybody on this committee cares about this, but I wake up every single night thinking what I could have done different," he said. "This is a pain that will stay with me for the rest of my life."

But during more than an hour of questioning, Fuld did not admit any specific mistakes. He blamed investors looking to make money from a fall in Lehman's share price for spreading false rumors that made it harder for Lehman to raise money. That, he said, created a liquidity problem and a crisis of confidence, leading to a run on the bank.

He described how he and top management sought to keep Lehman going, including a failed attempt to persuade federal regulators to let Lehman become a bank-holding company. The Federal Reserve ended up allowing Goldman Sachs and Morgan Stanley to do just that after Lehman failed.

"If you haven't discovered your role," Rep. John L. Mica (R-Fla.) told Fuld at one point, "you're the villain."

Fuld, who joined Lehman as an intern in 1966, was the first head of a Wall Street firm to face lawmakers following Friday's passage of the $700 billion rescue of the financial industry. It was the first in a series of hearings planned by the House Oversight and Government Reform Committee into the causes of the financial crisis that prompted the bailout. The committee presented several internal documents subpoenaed from Lehman, including a June e-mail written by Fuld dismissing a call by some employee shareholders to forgo bonuses this year.

"Don't worry, they are only people who think about their own pockets," Fuld wrote in the e-mail, which was distributed to reporters.

Lawmakers took the opportunity to exorcise taxpayer anger over executive pay, posting Fuld's compensation since 2000, an estimated total of $484.8 million. Fuld later said it was closer to $350 million.

The panel also took issue with a decision last month by board members to pay three executives a total of $23.2 million for leaving, even as the firm was collapsing, according to committee documents.

Fuld defended Lehman's pay practices, saying "the system worked" because 85 percent of his pay was in the form of stock, aligning him with shareholder interests. He owned 10 million shares when Lehman filed for Chapter 11 bankruptcy protection last month.

"I'd like this committee to know I got no severance. I got no golden parachute. I had no contract. I never asked for a contract," Fuld said. "I could have sold that stock. I did not because I firmly believed that we were going to return to profitability."

Lawmakers were not sympathetic.

"You did well when the company was doing well and you did very well when the company was not doing well," said Rep. Henry A. Waxman (D-Calif.), chairman of the committee.

Several members targeted positive statements Fuld made during a Sept. 10 call with analysts about Lehman's balance sheet, five days before the company filed for bankruptcy.

"The problem is we have statements . . . at the time that they were made were simply implausible. That raises the question of whether your perspective was clouded or whether something else was going on," Rep. John Sarbanes (D-Md.) said.

The FBI is investigating whether there was fraud at Lehman Brothers, and the Securities and Exchange Commission is looking into what Lehman disclosed about housing-related investments and how it valued them.

Fuld said he spoke and made decisions based on the information he had at the time. He said on the Friday before the Sept. 15 bankruptcy announcement that Lehman and Merrill Lynch were in similar circumstances and in talks with other banks over a possible merger or sale. On Sunday, federal regulators decided to let Lehman fail. The next day, Merrill said it would be absorbed by Bank of America and Lehman filed for Chapter 11.

When asked if he wonders why federal regulators let Lehman go under but not insurance giant American International Group, Goldman Sachs or Morgan Stanley, Fuld replied: "Until the day they put me into the ground I will wonder."

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