Former Lehman Brothers CEO Richard Fuld blamed the downfall of his firm on a "financial tsunami" but took responsibility for his decisions in his first public comments since the storied Wall Street firm filed for bankruptcy last month. Fuld, appearing before the House Government Reform Committee in Washington, D.C., said that he and other Lehman executives acted in the way they saw best, without knowing the financial turmoil that would eventually engulf the global financial markets and economy. "Based on the information that we had at the time," Fuld told the committee, "I believed that these decisions and actions were both prudent and appropriate. None of us ever gets the opportunity to turn back the clock, but with the benefit of hindsight would I have done things differently? Yes, I would have." Fuld said that, in retrospect, he would have made changes to the way Lehman operated in its mortgage, commercial real-estate and leveraged loan businesses two or three years earlier. Still, Fuld said, "people would have looked at me and said that it's irrational to have done that." Fuld -- who referred to himself as a "Lehman for lifer" -- joined the firm nearly 40 years ago and manned the helm since Lehman's spin-off from American Express ( AXP) in 1994. The former executive has been criticized by some for being overly confident in the firm's ability to withstand the financial turmoil that ultimately sealed its fate, and for waiting too long to acknowledge major issues with its assets and risk.
The company's fate took a sharp turn downward last spring after it unexpectedly reported a $2.8 billion second-quarter loss. During testimony, Fuld and other witnesses described the resulting loss of confidence, precipitous stock decline and demands from counterparties to offer more collateral for their loans. They also discussed how Fannie Mae ( FNM) and Freddie Mac ( FRE) contributed to mayhem in the capital markets. The week after the government announced a plan to essentially take over the two mortgage-finance giants, Lehman filed for bankruptcy. Before Fuld appeared, five witnesses criticized Lehman's handling of the credit and liquidity crisis, as well as Fuld's earlier statements that the company was in good standing, just weeks before its collapse. Luigi Zingales, a finance professor at the University of Chicago, said that Lehman was overleveraged, took on too much risk and did not adequately prepare for the "risk of a bank run." Nell Minow, chairman and editor of The Corporate Library, noted that her group gave Lehman substandard ratings for its high compensation ratio and corporate governance. Fuld noted that he still held 10 million shares of Lehman Brothers and other stock options when the firm filed for bankruptcy, and that his "financial interests completely aligned with those of Lehman shareholders." But members of the House committee still grilled him about his compensation, emails he received warning of the impending disaster and meetings he attended regarding the crisis, including one with Treasury Secretary Henry Paulson. "Your company is now bankrupt, our economy is in a state of crisis, but you get to take home $480 million," Chairman Henry Waxman said. "I have a basic question for you: Is this fair?"
Fuld took issue with the amount outlined by the committee -- putting it more on the mark of $350 million -- but acknowledged that it was still "a large number." The committee held the hearing to glean information for potential reforms related to the economic crisis that has sent global financial markets into a tailspin. In addition to Lehman Brothers' bankruptcy, the federal government has bailed out Fannie, Freddie and the world's largest insurer, AIG ( AIG). The same day Lehman filed for bankruptcy, Merrill Lynch agreed to sell itself to Bank of America ( BAC). Washington Mutual, the country's largest thrift, also was seized by federal regulators after a run on the bank and its assets sold to JPMorgan Chase ( JPM). And Citigroup ( C) agreed to buy troubled Wachovia ( WB) in a government-assisted deal, before being trumped by Wells Fargo ( WFC). The two sides are now battling it out in court.