The former Lehman Brothers boss Dick Fuld will deliver a defiant defence of his management of the defunct Wall Street bank today, telling an official inquiry that the firm's 2008 bankruptcy was down to false rumours about a solvency crisis, uncontrollable market forces and a refusal by the US government to come to the rescue.
Fuld, nicknamed "the gorilla" for his uncompromising style, has kept a low profile since Lehman imploded two years ago in a spectacular collapse that sent global financial markets spiralling into their worst crisis since the second world war.
In written evidence ahead of an appearance today in front of the bipartisan US Financial Crisis Inquiry Commission, Fuld concedes: "In retrospect, there is no question we made some poorly timed business decisions and investments."
But he insists that the bank "addressed those mistakes" and got back to a strong equity position prior to the fateful September weekend when Lehman was obliged to file for chapter 11 bankruptcy protection.
Fuld says Lehman had no "capital hole" of $30bn (£19.4bn) to $60bn as claimed by critics and that, conversely, it had positive equity in its final days of $26.7bn. Mindful of an upcoming credit tightening, he says the bank took prudent precautions including decreasing its exposure to less liquid assets during 2008 by almost 50%, writing down asset values by $25bn and raising $3.8bn in equity capital.
But in the aftermath of Bear Stearns's collapse in March 2008, he says Lehman was left as the next smallest Wall Street bank and was "subjective to increasingly negative and inaccurate market rumours".
"This loss of confidence, although unjustified and irrational, became a self-fulfilling prophecy and culminated in a classic run on the bank starting on 10 September, 2008, that then led Lehman to file for bankruptcy four days later," says Fuld.
The 64-year-old banking veteran, who now has a small New York-based financial consulting firm called Matrix Advisors, is highly critical of the Federal Reserve and other government regulators who declined to step in and salvage Lehman Brothers.
Fuld says he asked for permission to convert Lehman into a bank holding company with a federal guarantee and an ability to bolster its capital by taking deposits from customers, and he urged a ban on naked short-selling. These requests were denied to Lehman but later granted to other struggling investment banks. Furthermore, he says the Fed refused to open its "discount window" providing cheap capital until it was too late.
"Lehman's demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumours that Lehman did not have sufficient capital to support its investments. All of this resulted in a loss of confidence, which then undermined the firm's strength and soundness," says Fuld. "Other firms were hurt by their plummeting stock prices and widening CDS [credit default swap] spreads. But Lehman was the only firm that was mandated by government regulators to file for bankruptcy."
For all his defiance, Fuld could face a rough ride from the FCIC, which is chaired by a former Democratic state treasurer of California, Phil Angelides. The politicians and experts probing the crisis are likely to ask about a controversial accounting trick known as "repo 105" which was criticised by a court-appointed bankruptcy examiner as a technique used by Lehman to mask the size of its liabilities.
Fuld and his wife, Kathleen, spend part of their time now in self-imposed exile on a ranch near Sun Valley, Idaho. The former Lehman Brothers chief was paid more than $310m between 2000 and 2007. But in a sign of straightened financial circumstances following Lehman's collapse, the couple auctioned off a $20m personal collection of abstract drawings including art by Willem de Kooning and Barnett Newman.
The Lehman boss has stuck consistently to his line that the Bush administration ought to have rescued the 158-year-old bank, which was eventually dismembered, with much of its US operation bought by Barclays. Asked by a congressional committee in late 2008 why, in his view, regulators had allowed Lehman to go bust, Fuld replied: "Until the day they put me in the ground, I will wonder."
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