The Devil's Casino_ Friendship, Betrayal - Vicky Ward [82]
At first Fuld and Walsh were thrilled with the deal. They agreed with a report from
leading industry analysts, Greenstreet Advisors, that Lehman had actually underpaid for
Archstone. They simply had not foreseen how quickly and severely the market would
turn.
The timing was so atrocious that Speyer even called Fuld, according to the New York
Times, to see if Lehman wanted out. Of course not, Fuld said. He was a man of his word.
He'd put $4 billion on the Lehman balance sheet.
"Archstone would have been a good deal if there had been time to hold on to it," says a
member of the executive committee. "But the timing was terrible, especially given how
Lehman funded it. The market completely collapsed right at the time when they were
supposed to move all this stuff out, and so Lehman got stuck with it."
Steve Berkenfeld, chief investment officer for private strategy and formerly one of
Lehman's attorneys, later explained why Lehman was so willing to take those risks:
"How do we compete in a balance-sheet-driven business when we are half the size of
Morgan, Merrill, and Goldman, and a fraction of the size of Citi? . . . We go in to a client,
and they want $15 billion of financing. They don't want to hear that $5 billion is too big
for us. Do we get more active in the real estate area, which is a way for us to do it? Yes.
These are our ways of competing."
Perhaps, but these were also a way of dying.
Erin Callan later told Fortune that in the minds of Fuld and Gregory the gamble was
nothing more than a rerun of the Russian crisis; they thought they were playing highstakes poker. In her words, "The commercial real estate portfolio really was the albatross
of the firm."
Late in the summer of 2007, just as investors were beginning to panic, realizing that the
subprime mortgage meltdown might have much broader consequences, Gregory decided
to make more personnel changes. At this, Madeleine Antoncic, the head of risk, who was
already heading out the door (sources say she had been demoted to a seat in charge of
government relations), threw up her hands. She says she couldn't believe the stupidity of
what she was seeing--and she had seen a lot. She left.
Gregory went ahead with his plans, which were implemented a few months later. CFO
Chris O'Meara was demoted to chief risk officer (replacing Antoncic)--and the new CFO
was Erin Callan.
Skip McGee--who, as Callan's boss, had to make the announcement--deliberately moved
it to the bottom of his agenda during a managing directors meeting in London, because he
dreaded the incredulous reaction he knew it would elicit. Callan had zero accounting
background, even though Lehman was about to head into the worst financial crisis in
decades.
"When Skip McGee announced that she had become CFO and that she would join the
executive committee, it was as close to sort of open rebellion [as] I've seen at the firm,"
says one attendee.
"Some people who'd worked for her for a long time were basically shouting, and it was
just pandemonium," remembered a former member of the executive committee. "A
detached view is that she had worked for some of the guys in the room, and if somebody
gets promoted one or two steps ahead of you, you 're not going to be too happy, almost
regardless of the circumstances. So I guess you have to discount some of it. But basically,
people thought that she was a bad person." Or maybe not bad, but a political person who
dealt with male colleagues in an inappropriate way and was not qualified.
"She had zero clue about accounting . . . and she had never run a team bigger than 50
people. So the combination of no external experience, no finance background, no
management background, and this, the most difficult market ever, doesn't exactly strike
you as the most qualified individual to get that job," one colleague said. It was a cry that
echoed around the firm.
Some members of the executive committee complained