Too Big to Fail [72]
“Well, it does seem that a lot of the things I’ve raised over the last while seem to have been borne out by today’s news,” he said, apparently trying to sound as humble as possible, under the circumstances.
Einhorn discussed his concerns about the extent of SunCal and Archstone’s write-downs, and why they hadn’t come sooner, and then delivered a strongly worded admonition: “It’s time to dispense with the ad-hominem attacks and get down to an analysis of what’s really going on with this business.”
That afternoon, Charlie Gasparino, a tenacious reporter on CNBC, began hectoring Kerrie Cohen, Lehman’s spokesperson, to confirm a tip he had received that Gregory and Callan were about to be fired. Off the record, Cohen dismissed his tip as a useless rumor.
But Gasparino, still skeptical, pressed her to go to her boss, Freidheim. “I’ve got it that Joe and Erin are leaving the firm,” he said. “Unless you go on record, I’m going with it.”
When Gasparino threatens to go on the air with market-moving information—a reporting tactic for extracting information from sources—most executives, however much they might resent it, try to comply. Freidheim didn’t think any personnel changes were imminent, but before he officially denied it, he marched into Fuld’s office.
“I’m going to have to use my name,” Freidheim told Fuld, making it clear that his own credibility was on the line. “I have to know if you’re even thinking about it.”
“No,” Fuld replied, “it’s not under consideration.”
“Well, I’m going to have to talk to Joe,” Freidheim said, “because I need to know he’s not thinking about it, either. I’m not using my name unless I know it can’t happen.”
“Absolutely not,” Gregory stated when Freidheim put the question to him. “You can tell Gasparino you talked to me, and the answer is no.”
Keeping the lid on Gasparino was a relatively easy task compared to that of containing the pressure building within the firm. Bankers and traders were alternately restless, nervous, and angry.
Late that afternoon, Skip McGee forwarded an e-mail to Fuld from Beno”t D’Angelin, once his longtime counterpart—the former co-head of investment banking—in Lehman’s London office; he had left the firm to start a hedge fund. McGee was clearly trying to send Fuld a not-so-subtle hint.
Many, many bankers have been calling me in the last few days. The mood has become truly awful…and for the first time I am really worried that all the hard work we have put in over the last 6–7 years could unravel very quickly. In my view two things need to happen very quickly.
1. Some senior managers have to be much less arrogant and internally admit that some major mistakes have been made. Can’t continue to say “We are great and the market doesn’t understand.”
2. Some changes at senior management need to happen very soon. People are not and WILL not understand that nobody pays for that mess and that it is “business as usual.”
Fuld read the note somberly and wrote back to McGee with a promise that he’d have lunch with the top investment bankers to give them a chance to air their grievances.
What Fuld did not know was that a palace revolt was already in the offing. The week before a group of fifteen traders had gone to dinner at the private Links Club, on East Sixty-second Street, right off Madison. The purpose of the dinner was to discuss how Fuld could be pressured into firing Joe Gregory. If Fuld wouldn’t do it, they agreed, they’d threaten to resign en masse.
Jeff Weiss, the head of financial services banking, was not at the dinner nor was Gerald Donini, but both were patched in for the key discussions on speakerphone. Weiss advised against a confrontation. “Dick is not gonna react well,” he said. “You’re not going to get him to move by trying to corner him. Slow down. Things are moving in the right direction. Let this thing out over the next couple of days.”
At the executive committee meeting the following morning, Fuld looked exhausted, like a boxer gone one round too far. The fight had not gone out of him, but he knew that he had to try another approach.