The Devil's Casino_ Friendship, Betrayal - Vicky Ward [19]
On July 26, 1983, a special meeting of the board was called, and the directors arrived at 2
P.M. not having a clue what was going on. By the end of the afternoon, Peterson had
ceded completely.
Bob Genirs, a partner, recalls being summoned into the Lehman executive committee
meeting where Glucksman made the announcement.
"Lew and Pete stood together while Lew said that Pete was stepping down, and then, to
our astonishment, he asked Pete to leave so that 'I can talk to my partners,'" remembers
Genirs. "I thought, as I watched Peterson's face, 'We haven't heard the last of this.'"
After Glucksman ousted Peterson, the market nose-dived for a brief period.
Unfortunately this happened at precisely the same moment Glucksman got long in the
bond market--and the firm lost a ton of money Quite suddenly, Lehman was vulnerable.
Unfortunately for Glucksman, this played into Peterson's hands.
Moncreiffe explains: "Peterson's severance package contained a clause that stated that if
Lehman was sold within a specified number of years, he would get an uplift on his
equity--as would all the partners, most of whom were bankers, not traders. Most of the
bankers had a vested interest in Lehman getting sold at any price. They thought if it
doesn't get sold, they' re not going to get a premium on the equity that they've got in the
business. He [Lew] will redistribute their shares to his constituency and they' ll get taken
out at asset value. It is an example, in a sense, of absolute power being perhaps a negative
thing."
On May 11, 1984, Lehman Brothers Kuhn Loeb was absorbed into Shearson, a retail
brokerage firm acquired in 1981 by American Express, for $360 million. American
Express was then run by James D. Robinson III. It had luminaries like Kissinger,
President Gerald Ford, and Vernon Jordan on its board. Shearson was the second-largest
retail sales force in the country, run by Sanford I. "Sandy" Weill, who left almost
immediately after the deal was done and was supplanted by his deputy, Peter A. Cohen, a
brash-talking, dark-haired cigar smoker.
Peterson made $6 million from the transaction ($12 million today); Glucksman, $15.6
million ($32 million today); Peter Solomon, $7.8 million ($16 million today); Jim
Boshart, $6.2 million ($13 million today); Ron Gallatin, $6 million ($12 million today).
But before the merger could be completed, each Lehman partner who owned over 800
shares was asked to sign a noncompete clause. (According to Cohen, there was a secret
list with the 53 names Shearson American Express thought they needed. "We didn't really
care if the others didn't sign," he says.) Fuld held out until his mentor, Glucksman,
capitulated. Then he agreed, with a handful of other senior Lehman bankers, to join the
newly merged firm. Fuld then got a signing fee of $7.6 million.
Robinson's reason for buying an investment bank was to create the first financial
supermarket. He had a credit card business with American Express, and he had a
brokerage to sell it (Shearman); and--the third essential ingredient--he now had an
investment bank to stake his ground on Wall Street. But most of Lehman's most famous
bankers left as soon as the merger was completed. Most of them went on to richer
pastures. Peterson and Steve Schwarzman (who left six months into the merger, meaning
he never signed a noncompete clause) founded the private equity firm Blackstone Group.
The most senior Lehman partners left in the new firm (nicknamed Slamex) included Shel
Gordon, Peter Solomon, Bob Rubin (who left soon after Schwarzman), and Dick Fuld.
One by one, except for Fuld, they left. Peter Solomon was the last to go, in 1989. "I saw
how the new business was shaking out, how capital markets were rising and supplanting
the advisory business, and I realized it just wasn't my area of expertise," Solomon later
said. "I didn't want my reputation dependent on people I really didn't know, trading
securities I didn't fully understand, in time zones I rarely visited." He started his