Too Big to Fail [21]
That morning, Lehman Brothers had already sent out a press release summarizing its first-quarter results. As Callan knew, of course, the numbers were confidence inspiring. The firm was reporting earnings of $489 million, or 81 cents per share, off 57 percent from the previous quarter but higher than analyst forecasts.
The first news-service dispatches on the earnings release were positive. “Lehman kind of confounded the doomsayers with these numbers,” Michael Holland, of Holland & Company, the private investment firm, told Reuters. Michael Hecht, an analyst with Banc of America Securities, called the quarterly results “all in all solid.”
At 10:00 a.m., a half hour after the market opened, Callan entered the boardroom on the thirty-first floor. Though Lehman’s results were already calming market fears, a great deal was still riding on her performance. Surely everyone listening in would ask the same questions: How was Lehman different from Bear Stearns? How strong was its liquidity position? How was it valuing its real estate portfolio? Could investors really believe Lehman’s “marks” (the way the firm valued its assets)? Or was Lehman playing “mark-to-make-believe”?
Callan had answers to all of them. She had prepped and studied and gone through dry runs. She had even rehearsed the numbers for a roomful of Securities and Exchange officials—hardly the easiest crowd—over the weekend, and they left satisfied. She knew the numbers cold; she knew by heart the story that needed to be told. And she knew how to tell it.
The markets roared their approval of the earnings report. Shares of Lehman surged while the credit spreads tightened. Investors now perceived the risk that the firm would fail had diminished. All that had to happen now was for Callan to supply the punctuation. She took a sip of water. Her voice was raspy after talking nonstop for four straight days.
“All set?” asked Ed Grieb, Lehman’s director of investor relations.
Callan nodded and began.
“There’s no question the last few days have seen unprecedented volatility, not only in our sector but also across the whole marketplace,” she said into the speakerphone, as dozens of financial analysts listened. Her voice was calm and steady. For the next thirty minutes she ran through the numbers for Lehman’s business units, carefully elucidating the specifics, or, in the jargon of Wall Street, providing the “color.” She put particular emphasis on the firm’s efforts to reduce leverage and increase liquidity. She spelled it all out in painstaking, mind-numbing detail.
It was a stellar presentation. The analysts on the call seemed impressed by Callan’s candor, her command of the facts, her assuredness, and her willingness to acknowledge the outstanding problems.
But she wasn’t finished yet; next came the questions. First up was Meredith Whitney, an analyst with Oppenheimer, who had made her name as an unsparing banking critic the previous fall with the accurate prediction that Citigroup would be forced to cut its dividend. Callan, as well as every other Lehman executive in the room, held their breaths as they waited for Whitney to start probing. “You did a great job, Erin,” Whitney said, to everyone’s amazement. “I really appreciate the disclosure. I’m sure everyone does.”
Callan, trying hard not to show her relief, knew then that she had pulled it off. If Whitney was buying it, all was well. As they spoke, shares of Lehman continued spiking. The markets were buying it, too. The stock would end the day up $14.74, or 46.4 percent to $46.49, for the biggest one-day gain in the stock since it went public in 1994. William Tanona, an analyst with Goldman Sachs, raised his rating on Lehman to “buy” from “neutral.”
When the session ended, the excitement at Lehman was palpable. Gregory rushed over to give Callan a big hug. Later, as she went down to the bond-trading floor,