Is Lehman’s Fuld on the Ropes?

We were pretty skeptical of the idea that Korea Development Bank would buy a stake in Lehman, particularly since Dick Fuld seems a bit in denial as to what a stake in the storied firm might fetch these days (for instance, for the asset management operations, he wanted a buyback option. Let’s see, you are desperate for cash, everyone knows it, and you are pushing for rich terms?. You can’t bluff when everyone at the table knows you have a weak hand.)

The Wall Street Journal reports that KDB is now toning down its statements of interest:

KDB later played down the likelihood that it is ready to swoop in on Lehman. “We are just at an early stage of privatization, and we are weak at investment banking by international standards,” bank spokesman Sung Joo-yung said in an interview with The Wall Street Journal. “In the long term, we should strengthen that weakness.”

Translation: yes, we’d like to acquire investment banking expertise. That may mean buying some or all of an investment bank. But we are not in a rush.

The Journal also provides some tidbits on the politics:

KDB’s new chairman, Min Euoo-song, is a former chief of Lehman’s Seoul branch and has a reputation in Korean banking as an aggressive deal maker. But to make a takeover or sizable investment in Lehman work, Mr. Min would have to persuade South Korean regulators that Lehman fits with the government’s plan to privatize KDB.

In June, the government laid out specifics for splitting KDB into a holding company, which would become privatized by 2012, plus a separate development fund that would remain in government hands. Despite those plans, South Korean regulatory agencies are filled with people who lived through the financial crisis that drove the country to the edge of bankruptcy a decade ago. That is likely to make them especially cautious about any deal with Lehman.

Even if KDB’s chairman makes a full court press, wily bureaucrats could kill the deal by studying it to death. Time is of the essence here.

While that rumor (or more accurately, line of speculation) fades, another one is gaining steam, namely, that a palace coup is underway. From the Guardian (which broke this story):

Richard Fuld’s days as Lehman Brothers chief are numbered as a plan is being hatched within the troubled Wall Street investment bank to strip him of his executive duties…

Whether a Lehman suitor emerges or not, well-placed sources within the bank are certain that Fuld is set to hand over the reins before the end of the year. ‘He is involved less and less with day-to-day executive affairs, and his credibility is shot,’ one senior Lehman source said.

Fuld, one of the best-paid executives on Wall Street, is responsible for forcing the bank deeply into the sub-prime mortgage-related debt market….

Despite Fuld’s best efforts, the bank’s plight has been the talk of Wall Street all summer. Speculation about asset sales, investments by sovereign wealth funds and outright acquisition have gathered pace in recent days…

Insiders pointed out, however, that Bart McDade, Lehman’s relatively new chief operating officer, has assumed many of Fuld’s former duties.

Again, Lehman would not comment about McDade’s future at the bank. A source close to the chief operating officer would only say that there ‘had been no conversations’ about his becoming chief executive.

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  1. wintermute

    Fuld isn’t on the ropes – he is flat on the mat getting a count.
    Whatever untarnished image Lehman Brothers had left is now gone since it has been selling like the oldest prostitite in town – while the game lasts – pardon the pun.

  2. skeptical

    The end of the year…it is purely wishful thinking that Lb will be in a position to let go of anybody at the end of the year… .

  3. S

    Not to belabor the point, but this blog has been saying this for some time. Forget Lehman, it is criominal that this guy is still sitting on the board of the NY Fed. Put a fork in the Gorilla. If Lehman is to survive, and it is a great franchise, Fuld should be thrown out on his #$%.

  4. Anonymous

    A rumor started by some spiked financials for a day or perhaps more than a day.

    What is new here? Talking heads of the MS Media got another day on the payroll, financials got a spike, some saps not wanting to miss the move up in financials will get crushed…BAU…the game continues.


  5. Anonymous

    Sounds to me like Fuld has become a card carrying member of Phil Gramm’s whining Americans…..

  6. doc holiday

    Lehman needs a Maiden Lane “2” LLC-like entity, which The Fed can design, and thus Leh will be allowed to sell toxic garbage to its QSPE-like dump in a massive effort to clean up the balance sheet, and then issue repackaged covered bonds — while the hero-like Fuld walks away with $100 million as a reward for a job well done, while the top 2% of taxpayers politely applaud in the shadows…
    On June 26, 2008, the Federal Reserve Bank of New York (FRBNY) extended credit to Maiden Lane LLC under the authority of section 13(3) of the Federal Reserve Act. This limited liability company was formed to acquire certain assets of Bear Stearns and to manage those assets through time to maximize repayment of the credit extended and to minimize disruption to financial markets.

  7. Anonymous


    History suggests the Fed is especially vulnerable at times of economic turmoil. The Depression led to an overhaul that shifted power from its reserve banks to Washington, DC. The stagflation of the 1970s coincided with congressional efforts to take control of the Fed’s budget and the requirement that it seek both full employment and stable prices. The crisis that began a year ago may yet mark another turning-point in the relationship between America’s politicians and its central bank.

    By far Mr Bernanke’s most innovative response to the credit crisis has been the expansion of the Fed’s tool kit from control of short-term interest rates to the deployment of its balance-sheet to restore liquidity to specific markets, such as that for inter-bank loans. A year ago 91% of the Fed’s assets were invested in government bonds. Now the share is 52%. Loans to banks and investment banks backed by a hotch-potch of collateral account for the difference (see chart 1).

    Mr Bernanke often notes this simply returns the Fed to its roots as lender of last resort: it was created primarily to prevent financial panics. But now that its lending goes beyond the federal government, it faces fine judgments. To whom should it lend and on what terms? And how does it avoid becoming a crutch for markets that cannot stand up on their own?

  8. Anonymous

    Ok guys, lets telegraph a story about a long term plan, no … call it a coup, to get rid of the CEO, ahhhh, maybe that will help? That might take the spotlite off us and focus on him as the “real bad guy” and then people will look at future value here as more of a possibility, say, in about 6 months or so? Hows about a show of hands on the coup?

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