The hope at Lehman Brothers is that a management shakeup on 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 US$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 on Thursday to US$22.70 and are down 30 percent this week. The decline is a blow to investors who bought into a stock offering at US$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 — Wall 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.
Confidence in the company eroded after it pre-announced a nearly US$3 billion loss for the second quarter and unveiled a plan to raise US$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.
Callan and Gregory join a long list of executives who have lost their job since global banks and brokerages began writing down nearly US$300 billion of bad investments stemming from bad bets on mortgage-backed securities.
Others who have lost their jobs include former Merrill Lynch & Co CEO Stanley O’Neal, former Citigroup Inc CEO Charles Prince and former 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 chief financial officer 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 chief financial officer.
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 as chief operating officer was “one of the most difficult decisions either of us has ever had to make.”
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