Bleeding Green: The Fall of Fuld

If you've ever heard of the tony estates of Greenwich, Conn., it probably wouldn't surprise you to learn that some come equipped with squash courts.

A decade ago, George Ball lived a mile and a half away from one of them. Ball was friends with the property's athletic owner and they played the game together -- one alpha male against another in a white box court.

Ball's squash partner was Richard Fuld, the chief executive officer of Lehman Brothers. Fuld, he said, wanted "very badly to win" but he also played fair.

Fuld is "the rare person who simultaneously wants to beat your brains in but also takes a good deal of joy in the things that his opponent does well," Ball said.

Off the court, Fuld, 62, probably isn't taking joy in much these days. Last month, Lehman Brothers filed for bankruptcy protection, marking the demise of one of Wall Street's most storied brokerage firms. Today, Fuld, who declined an request for an interview, is scheduled to testify before Congress in a hearing on the financial crisis that continues to wreak havoc at other financial firms and the economy. (Read Fuld's prepared testimony.)

Lehman's bankruptcy thrust Fuld, who led the firm for 15 years and worked there for nearly 40, into the ever-growing club of CEOs who saw their investment banks felled by the subprime housing meltdown. On the day of Lehman's bankruptcy filing, Merrill Lynch announced it was selling itself to Bank of America. Months earlier, Bear Stearns was purchased by JPMorgan Chase with the government's backing. The week after Lehman's collapse, the country's last two major independent brokerage firms -- Goldman Sachs and Morgan Stanley -- sought to save themselves by morphing into commercial banks.

The bankruptcy filing distinguished Lehman from the fate of its brokerage brethren. Most of Lehman's North American operations were purchased by the U.K.-based Barclays Capital. But the debt holders of Lehman, unlike those of Bear Stearns and Merrill, were left with pennies on the dollar, said Sean Egan of the credit rating company Egan Jones.

And while shareholders of Bear Stearns saw the value of their stocks decimated, they still came out ahead of those who invested in Lehman, including many Lehman employees, who saw their holdings plummet to nothing. Fuld himself, according to, lost at least $600 million since December.

The face of Lehman's defeat, quite literally, was Fuld. On the day the bankruptcy filing was announced, artist Geoffrey Raymond -- known for painting Wall Street heavyweights and politicians -- debuted a large portrait of Fuld outside Lehman's Times Square headquarters. As he's done with other works, Raymond invited passersby, including Lehman employees, to use colored markers to sign messages on the canvas.

Lehman Employee: Fuld 'Broke Our Heart'

Green -- Lehman's official color -- was reserved for use by Lehman workers and their families; black and blue were for everyone else. Today, more than a third of the scribbles on the portrait are in green. Among the green messages, presumably directed at Fuld: "25,000 unemployed; I hope you are happy," "Your employees bled green for you," "You are a coward" and "You broke our heart."

Other messages were less polite, including some crude interpretations of Fuld's first name.

Perhaps the most tangible sign that Fuld's star had fallen, however, came with a change of venue -- the Wall Street Journal reported last week that Fuld was "banished" from his corner office in Lehman's Seventh Avenue headquarters and instead moved to a Sixth Avenue building, where he and other Lehman executives who weren't offered jobs at Barclays will continue to work through Lehman's bankruptcy proceedings.

To say that Fuld was in a dramatically different position one year ago would be an understatement roughly the size of Lehman's bankruptcy itself.

Last March, he was named in Barron's list of the world's 30 best CEOs. The magazine dubbed Fuld "Mr. Wall Street," praised him for his passion and recognized him for turning "a bond shop into an elite investment bank."

Under Fuld's stewardship, Lehman's net income increased more than six times over, from $647 million in 1997 to $4.2 billion 10 years later. That year, Fuld himself received more than $70 million in salary, stock options and other compensation, according to the compensation firm James F. Reda and Associates.

He was credited with bringing new success to the 150-year-old firm by expanding the firm's services well beyond bond trading to include work on multibillion-dollar merger deals and asset management, among others.

Fuld "is the most intense person I've ever met in my life," said Bruce Foerster, who served as the head of Lehman's global equities syndicate from 1992 to 1994. "When he walks into a room, it's electric. He's electric."

That electricity could be intimidating.

"You weren't easygoing around Dick Fuld," Foerster said. "You took a couple of extra breaths of air before you started talking to him just so you had some extra oxygen in your brain."

But "the gorilla," as he was known by some, was not too tough to express emotion.

In 2003, when accepting a "Bank of the Year" honor at an awards gala in London, Fuld's voice cracked as he gave an emotion-laden speech, according to the Financial Times newspaper.

Fuld: The 'Digital Mind Trader'

"This is for my people. Lehman stand! Troops, be recognized. Everyone at Lehman in this room, stand and be recognized," he said.

According to Foerster, now the president of South Beach Capital Markets in Miami, Fuld proved himself long before Lehman's success could be seen on paper.

In 1984, Lehman was acquired by American Express. Ten years later, Lehman was spun off, but its newly regained independence didn't come without some significant stumbling blocks, including in-fighting.

"We're lucky we survived and I think we did it on the back and on the strength of Dick's leadership," Foerster said. "He started to create a feeling of togetherness. ... A culture of the client was more important than the firm, and the firm was more important than the individual."

Fuld's growing reputation as a leader, however, came as a surprise to observers such as Ken Auletta, media critic for New Yorker magazine and the author of the 1986 book "Greed and Glory on Wall Street: The Fall of the House of Lehman," which chronicled the events that led to Lehman's purchase by American Express.

Fuld joined Lehman as a trader in 1969. He eventually became known as the "digital mind trader," Auletta told, in part because the amount of time he spent with his eyes locked on his computer screen.

Fuld was also known for his bruising talk toward the firm's investment banking side. He joined other traders in being frustrated, Auletta said, that the firms' trading division received just a third of the firm's profits even though it brought in three-quarters of its revenue.

"He exuded hostility," Auletta said.

Yet somehow, Fuld changed. After American Express' acquisition of the firm, many Lehman employees fled. But Fuld, Auletta said, became a favorite at the company and also played a part in keeping Lehman's name intact.

"They saw that Fuld had talent and they rewarded him for it," Auletta said, "and he helped convince them to re-create the Lehman brand."

In 1990, he became a co-chief executive of what was then known as the Lehman Brothers division of American Express' brokerage business.

"One of the ironies is that Fuld was a polarizing figure, then somehow became more of a leader able to harmonize and lead both the investment banking side and the trading side of Lehman Brothers," Auletta said.

For all Lehman's successes, by the spring of this year it was clear that, as for other financial firms, investing in risky loans -- namely residential and commercial mortgages -- was hurting the firm.

Lehman: The Bankruptcy and the Blowback

After the March collapse of Bear Stearns, Wall Streeters began buzzing that Lehman would be the next to go.

Fuld, meanwhile, put on an optimistic face. He told The Economist magazine in April that, with nearly $200 billion of liquidity and collateral, he was "thrilled" with Lehman's response to the mortgage crisis.

"Smart risk management is never putting yourself in a position where you can't live to fight another day," he told the magazine.

Nevertheless, in early June, Lehman posted a second-quarter loss of $2.8 billion, its first since going public in 1994.

The poor showing led to the ouster of two key Lehman executives. But the bad news kept coming: On Sept. 10, Lehman reported another loss -- this time of $3.9 billion.

Five days later, the firm filed for bankruptcy protection.

Egan said Fuld erred by relying so heavily on debt to finance the firm's investments.

"It was lunacy to believe that he could run an operation with $650 billion worth of assets with only 3 percent shareholders' equity," he said.

Fuld was also criticized for blaming short-sellers -– traders who make bets that a company's share price is going to fall -- for some of Lehman's troubles and for reportedly spurning earlier offers by other companies to buy Lehman.

Fuld's supporters, meanwhile, differ in the ways they choose to defend the embattled CEO.

Foerster said that he agreed with Fuld's concerns about short-selling and also said that it was too early to tell how much blame his one-time colleague should shoulder for Lehman's downfall.

"Something was going on in the marketplace that was far larger and more powerful than anyone ever expected," he said. "It's bigger than one person."

Ball, the chairman of the financial firm Sanders Morris Harris Group in Houston, suggested that Fuld's fault, ironically enough, may have been rooted in his dedication to Lehman.

"To some extent, any leader who has built a company, built a business, hired the people, engineered the lines of business ... if he or she is a decent human being, he is going to have some reluctance to tear down that business, to fire the people, to dismember it," Ball said.

"That," he said, "would make anyone a bit slow to react."