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As for Joe Gregory?

He swept into his new role as the head of equities, fired 27 out of the 29 people in the

department, and hired a fresh team. One of those fired was Craig Schiffer.

Many of the people fired by Gregory assumed it was because of their feelings for Pettit,

not because of their job performance. "If Lehman held a Lehman court, they would have

all testified for Chris, and so Joe didn't want them around," says one person close to the

situation.

Years later when Schiffer met Gregory for breakfast, Joe told him blithely: "Never pick

an argument with your boss, Craig, because the bigger title will always win. You lost

your job because you didn't learn that." (Fuld later said about Schiffer, "Why did we let

him go? I always liked him, always thought he was good.")

But some still remembered Pettit as the man who had positioned the company for its

sudden rise. Jim Vinci says: "I can't tell you how hard I laughed when I saw that Fortune

magazine article [in April 2006] about Dick." "So complete has Fuld's makeover of

Lehman been that he is more like a founder than a CEO," it read.

"It was just ridiculous. I think a lot of us thought, ' How could they tell this story without

Pettit? Like Dick did this all by himself?' It was nauseating."

Fuld, Lessing, Gregory, and the rest didn't have time to look back.

"It was a very exciting time in the marketplace. . . . We were competing aggressively

with Goldman and Salomon Brothers . . . [and had] started to build out Europe and Asia .

. . becoming more of global firm," Lessing wrote in the document commissioned by

Gregory in 2003. "It was really an intense, once-in-a-lifetime opportunity to build

something and bring back the Lehman Brothers name, which had a 150 -year tradition."

The new frontline committee had Gregory (equities) and Vanderbeek (fixed income). Mel

Shaftel was replaced by a banking troika--Mike Odrich's idea--comprised of Bradley Jack

from fixed income and capital markets, Steve Berger from European investment banking,

and Michael "Mike" McKeever from within banking.

The firm stayed on its upward trajectory. Standard & Poor's upgraded its outlook from

"negative"--to which Lehman had sunk thanks to that $22 million first quarter--to

"stable." Moody's had also downgraded the firm during the Mexican crisis, but by 1997 it

had Lehman back up to single A.

Investment banking yielded record revenues, as did the real estate, mortgages, high yield,

and emerging markets departments.

Two executives were crucial during this period.

One was Robert "Bob" Millard, an MIT graduate who was Lehman's biggest earner by

far throughout the 1990s. His investment business had returns of around 15 percent per

year--on no leverage. One of the most successful investments was in an aerospace

company called L3 Communications where Millard was appointed lead director. "We

invested $60 million; we ended up with a multiple of that many times over," he says.

Another MVP was Mark Walsh. Since 1991 Walsh, a very dynamic and well-liked

executive, had run the principal investing activity for commercial real estate within the

fixed income division's umbrella. This meant he made loans to both developers and

buyers of commercial real estate. He provided the financing for an acquisition--like the

$700 million purchase of the General Motors building (now home to FAO Schwarz and

Apple retail stores) on Fifth Avenue and 59th Street in Manhattan.

Walsh would also invest in the equity of his deals. One of his most famous trades in the

early 1990s was the purchase of a building in Times Square that was considered ugly and

was being sold at a relatively low price. Walsh realized that its value was its position; you

could make vast profits by sticking billboards on it. He rented out the wall space and then

resold the building two years later at a far higher price. According to Cecil, that deal

made Lehman $80 million, and cemented Walsh's reputation as Lehman's King Midas.