Too Big to Fail [9]
As Fuld’s Mercedes sped across a desolate Fiftieth Street, sanitation workers were hauling crowd-control barriers over to Fifth Avenue for the St. Patrick’s Day parade later that day. The car pulled into the back entrance of Lehman headquarters, an imposing glass-and-steel structure that may as well have been a personal monument to Fuld. He was, as Gregory often put it, “the franchise.” He had led Lehman through the tragedy and subsequent disruptions of 9/11, when it had had to abandon its offices across the street from the World Trade Center and work out of hotel rooms in the Sheraton, before buying this new tower from Morgan Stanley in 2001. Wrapped in giant LED television screens, the building was a bit gauche for Fuld’s taste, but with New York City’s unstoppable real estate market, it had turned into a hell of an investment, and he liked that.
The daunting thirty-first executive floor, known around the firm as “Club 31,” was nearly empty as Fuld stepped out of the elevator and walked toward his office.
After hanging his coat and jacket in the closet next to his private bathroom, he began his series of daily rituals, immediately logging on to his Bloomberg terminal and switching on CNBC. It was just after 6:00 a.m. One of his two assistants, Angela Judd or Shelby Morgan, would typically arrive in the office within the hour.
When he checked the futures market—where investors make bets on how stocks will perform when the markets open—the numbers hit him in the face: Lehman shares were down 21 percent. Fuld reflexively did the calculations: He had just personally lost $89.5 million on paper, and the market hadn’t even opened.
On CNBC, Joe Kernen was interviewing Anton Schutz of Burnham Asset Management about the fallout from the Bear Stearns deal and what it meant for Lehman.
“We’ve been characterizing Lehman Brothers as the front, or ground zero, for what’s happening today,” Kernen said. “What do you expect to see throughout the session?”
“I expect these investment banks to be weak,” Schutz replied. “The reason is there’s just this tremendous fear of mismarking of assets on balance sheets, and how could JP Morgan have gotten away with paying so little for Bear Stearns, and why did the Fed have to step up with $30 billion to take on some of the bad assets. I think there’s a lot of question marks out here, and we’re in need of a lot of answers.”
Fuld watched with a stone face, mildly relieved when the conversation veered away from Lehman. Then it veered back. “What do you do if you’re one of the thousands and thousands of Lehman employees watching every tick here today?” asked Kernen. “This is people on pins and needles.”
Pins and needles? That didn’t begin to describe it.
At 7:40 a.m. Hank Paulson called to check in. Dow Jones Newswire was reporting that DBS Group Holdings, the largest bank in Southeast Asia, had circulated an internal memo late the previous week ordering its traders to avoid new transactions involving Bear Stearns and Lehman. Paulson was concerned that Lehman might be losing trading partners, which would be the beginning of the end.
“We’re going to be fine,” Fuld said, reiterating what he had told him over the weekend about the firm’s solid earnings report, which he planned to announce Tuesday morning. “That’ll quiet down all this shit.”
“Keep me updated,” Paulson said.
An hour later tumult ruled on every trading floor in the city. Fuld stayed glued to the two Bloomberg screens on his desk as Lehman’s stock opened: down 35 percent. Moody’s reaffired its A1 rating on the investment bank’s senior long-term debt, but the rating agency had also lowered its outlook to stable from positive. On the flight back from India, Fuld had debated with Gregory and Lehman’s chief legal officer, Tom Russo, about whether to preannounce the firm’s earnings today, before the market opened, instead of tomorrow, as originally planned. There was no compelling reason to wait. The earnings were going to be good. Fuld had been so confident that, before leaving for Asia, he recorded an upbeat internal message to employees.