Disgraced Banker Faces The Music

The Age

Wednesday October 8, 2008

Anne Davies, Washington

THE disgraced chief executive of US investment bank Lehman Brothers, Richard Fuld, has told a US congressional committee that he takes responsibility for the collapse, but has no idea why Lehman was allowed to go under while Treasury bailed out others.

He would wonder "until they put me in the ground" why the US Government did not rescue Lehman three weeks ago, when it was prepared to bail out AIG and Merrill Lynch. "I do not know why we were the only one that was not rescued," he said.

For two hours on Monday, Mr Fuld, looking strained and unhappy, but defiant, answered questions from the oversight committee.

The committee wanted to know what had led to the 158-year-old investment bank's demise. Was it a failure of the regulatory regime? Bad judgement? Greed fuelled by multimillion-dollar remuneration? Or a combination of this and more?

But there were also recriminations directed more broadly at Wall Street for the turmoil the meltdown was bringing to Main Street.

Committee chairman Henry Waxman opened with a question Mr Fuld was never going to answer: Was it fair that he had earned about $US800million ($A1billion) during his 12 years as head of Lehman Brothers, when investors and employees, and now the public, were being asked to pick up the pieces?

During his interrogation, Mr Fuld gave little insight into what went wrong - perhaps anticipating lawsuits. Despite being shown internal briefing notes from January that warned "liquidity could disappear quite quickly", Mr Fuld said the company had increased its liquidity.

"We did not mislead our investors," he said. "We made disclosures that we believed were accurate to the best of our ability."

He also appeared to point the finger towards Goldman Sachs in the final days, suggesting Goldman had been involved in "the downside momentum" against Lehman.

Mr Fuld said he took full responsibility for his actions before Lehman's downfall, but said US regulators knew the full state of Lehman and how it was pricing distressed assets and that Securities and Exchange Commission staff were working inside the company before its demise.

He said Lehman had been trying to boost its capital reserves and was exploring the creation of a separate company, Spinco, to hold the troubled mortgage assets.

He said the weekend before the collapse he firmly believed Lehman would do a transaction that would save the company from bankruptcy and that Merrill Lynch and Lehman were in the similar positions that Friday night before their fates diverged.

At one point Mr Fuld, asked about the fate of his employees said: "I wake up every single night with the thought what could I have done differently. This is a pain that will stay with me for the rest of my life."

But he disputed the figures on his salary - he said it was more like $US350 million not $US800million over the years he was CEO and said he still held most of his stock when the company collapsed three weeks ago.

"I want to be very clear - I take full responsibility for the decisions that I made and for the actions that I took based on the information that we had at the time," Mr Fuld said.

"I feel horrible about what has happened to the company and its effects on so many."

Congressman Waxman fired one more projectile: "I have heard you talk about what you should have done differently, but you don't seem to acknowledge that you did anything wrong," he said.

Mr Fuld did not reply.

© 2008 The Age

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