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In an effort to show that this realignment was not mere lip service, once Hill and Fuld

were appointed co-heads of Lehman in 1990 (Hill was responsible for banking; Fuld for

fixed income with Chris Pettit as COO), Hill built one office next to Fuld's on both the

trading floor and another on the banking floor. The goal was to cement the idea of

Shearson Lehman as one firm, with no more feuds between the bankers and the traders.

And for a while it worked, in part because Dick Fuld needed it to work. He knew he had

to learn what Tom Hill knew, how to be him, if he was ever to make it to the top echelons

of Wall Street.

Over the next two years, according to one insider, Fuld studied Hill so intensely "he

should have been given a postgraduate degree in learning how to become Tom Hill. He

had studied and studied and studied Tom Hill. If you walked into a meeting in Dick's

office between 8:30 and 10:00 in the morning, Tom would always be sitting there, they

would both have their nail clippers out, and they would both be filing and clipping their

nails at almost exactly the same time.

"I really believe that if Tom had regular bowel movements at 9:15 in the morning, and

that's what an investment banker's supposed to have, [Fuld] would have followed him to

the men's room.

"And as bright as Tom is, I don't really think he believed--understood--that he was really

like an animal in the zoo that was being studied. Dick was able to take mannerisms that

he saw in Tom; he was able to take the essential personality."

These were lessons Fuld knew were essential for him to learn if he was one day going to

lead an investment bank of his own. And to do that, he'd have to get rid of Shearson and

American Express--and Tom Hill and Chris Pettit.

Chapter 6

The Phoenix Rises

Do you honestly think, given what you know about Dick

Fuld, that he tried to save my job? Of course he didn't. He

needed me gone.

--J. Tomlinson Hill, Vice Chairman of the Blackstone Group

One of the biggest challenges Dick Fuld, Chris Pettit, and the other senior people at

Lehman embraced during their years under Shearson and American Express was not just

to protect their bonuses. They were protecting the brand of Lehman so that one day it

might stand alone. They didn't do this just out of idealism--it was the only way they'd get

really rich.

In an attempt to reshape the merged company and expand his little unit into all of fixed

income, Pettit hired John Cecil and a team from McKinsey & Company, the consulting

firm. Until 1990, the Lehman retail brokers knew they would always be involved in

equity (stock) underwritings, of which they took a percentage for themselves, while the

Shearson brokers depended on over-the-counter stocks, municipal bonds, and tax shelters

(which paid less commission). There was much less upside in this, so the Shearson

brokers never gelled with their Lehman counterparts.

Meanwhile, irking the American Express and Shearson leadership was the fact that the

Lehman banking had been weakened when so many of its top bankers left with, or soon

after, the merger. This meant that while Goldman Sachs had the topflight clients, Lehman

was left with middling seconds.

And although, on the equity side, Lehman was in many deals controlled by Goldman

Sachs, Merrill Lynch, or any of the other titans of Wall Street, it was rarely the lead

banker in a quality deal. In other words, IBM, or any other huge conglomerate with

mountains of money to throw around, would not make Lehman the banker of choice if it

wanted to do an offering or an acquisition.

Further muddling things was the fact that on May 14, 1987, Shearson Lehman went

public; it sold 27 percent of its stock--13 percent had been bought by Japan's largest

insurance company, Nippon Life, and the rest was owned by American Express.

By 1990, Jim Robinson had decided it was time for a change.

Shearson Lehman had started to lose money as the market turned sour at the end of 1989.

The high-yield