The Devil's Casino_ Friendship, Betrayal - Vicky Ward [90]
McDade quickly began making staffing changes. The Tuesday following Gregory's
ouster, he met with his old friends--and Lehman exiles--Mike Gelband and Alex Kirk at
Kirk's apartment and persuaded them to rejoin the firm. By late June, the two were back
on the trading floor, where they were greeted with deafening applause.
McDade also brought back John Cecil. He said, "John, I need you in a meeting." It had
been several years since Cecil had looked over the Lehman balance sheets. When he saw
roughly $40 billion in commercial real estate and a further $25 million in residential real
estate, he was appalled. It struck him as he looked around the Lehman executive floor
that even though the mood was grim and determined, everyone seemed exhausted. "There
was no sense of sufficient urgency," he says.
McDade rapidly dismantled Gregory's costly human resources department. At long last,
co-CAO Ian Lowitt, a Rhodes scholar and McKinsey-trained polymath who had been
widely considered a shoo - in for the CFO spot before Callan nabbed it, got the job. (One
reason Lowitt may have been passed over, according to one executive, was that Gregory
considered him to be a "sloppy" dresser.)
Jerry Donini, the head of American equities, took McDade's old job as global chief of
equities, and an Italian banker named Riccardo Banchetti was tapped to be Christian
Meissner's partner heading the investment bank's European and Middle Eastern
operations, the post vacated by Isaacs. Two new fixed income chiefs were also named,
Asian capital markets head Hyung Soon Lee and global credit products chief Eric Felder.
In short order, Fuld's band of loyalists had been almost wholly marginalized.
McDade split senior management into teams to divide the considerable labor of executing
his game plan to save the firm. His major objectives included selling the firm by the next
quarter, which was less than three months away. The eight specific tasks at hand were, in
summary:
1. Get the toxic assets (the commercial real estate loans) off the balance sheet and spin
them off into a separate vehicle--which would come to be dubbed "SpinCo"--that would
be disbursed to shareholders. The idea was that if SpinCo could somehow be deemed
exempt from the requirement to mark all of its 2,500 commercial real estate investments
to market, it would eventually ride out the bear market and generate a profit for
shareholders.
2. Raise at least $3.8 billion by selling an equity stake in the newly sanitized "CleanCo"
to a partner, an endeavor that was named "Project Blue." Skip McGee and the bankers
were put in charge of "Project Blue," and worked off a document that outlined a possible
merger with the Korean Development Bank (KDB, Korea's national bank), which,
Lehman hoped, would own 55 percent of Lehman's investment management division,
which included NeubergerBerman, which had no debt and was worth perhaps as much as
$9 billion (some insiders even thought $10 billion). Aside from KDB, there were also
merger talks with Bain and Hellman, Kohlberg Kravis Roberts, and Blackstone.
3. Reduce "less liquid asset exposures in mortgages, commercial real estate, and highyield acquisition finance"--in lay terms, stop plowing money into risky real estate
ventures.
4. Reduce head count and expenses.
5. Make multiple management changes to improve performance and risk management.
6. Finalize a restructuring of all "securitized product origination platforms." (Translated
into English, this generally referred to finishing off the mass purge of Lehman staffers
involved in the mortgage business.)
7. Slash nonpersonnel expenses by $250 million.
8. Reduce the common dividend to $1.25 per quarter.
By now an emissary from the government--either Treasury, the New York Federal
Reserve, or the Securities and Exchange Commission--was inside Lehman (and most
other Wall Street firms) daily. Paulson had even persuaded his old Goldman Sachs
buddy, Ken Wilson, to act as a liaison with Lehman.
Paulson was prepared to help Fuld