Power, Greed and Glory on Wall Street: the Fall of the Lehman Brothers

Topics: Lehman Brothers, Investment banking, Goldman Sachs Pages: 28 (11757 words) Published: April 16, 2011
BYLINE: By Ken Auletta; Ken Auletta is an author and newspaper columnist whose most recent book is ''The Art of Corporate Success.'' SECTION: Section 6; Page 29, Column 1; Magazine Desk
LENGTH: 11488 words

FOR YEARS THE RESENTMENT HAD been building. And now, at lunch, it began to erupt. Lewis Glucksman, the co-chief executive officer of Lehman Broth-ers Kuhn Loeb, a short, rumpled man with the face of a Russian general, who was disparaged by Wall Street blue bloods as a lowly ''trader,'' Lew Glucksman would leave the lunch table determined to remove Peter G. Peterson, his imperious co-C.E.O. at the venerable investment banking house, from his job. The luncheon took place on July 12, 1983, and the fallout from the explosion it triggered carried the sto-ry from the business pages to the front pages. Thirteen days later, Peterson, a celebrated success story - president of Bell & Howell at the age of 34, Secretary of Commerce under President Nixon and the man who had helped rescue Lehman from collapse in 1973 - would be forced out of the firm he had helped steer to five consecutive record profit years. Ten months later, Wall Street's oldest continuing investment banking partnership, a firm that had survived for 134 years (box, page 31), would fail to survive the reign of Lewis L. Glucksman and would be sold to Shearson/American Express, one of the great whales that now dominate Wall Street. This is the story of the fall of Lehman Brothers, pieced together over a period of 10 months. It represents some 45 hours of interviews with Peterson and about 30 hours with Glucksman. It also represents extensive interviews with all the members of Lehman's board of directors, with 34 active or former partners, with numerous as-sociates, with employees and people on and around Wall Street. Many internal Leh-man documents and financial records were reviewed. Descriptions of events have been confirmed by participants, including adversaries. What emerges is a modern melodrama, the tale of an irreconcilable conflict be-tween two men, a story of cowardice and intrigue, of greed for money and power and glory. In its broader implications, the fall of Lehman provides a window on the forces that are reshaping Wall Street and capitalism. When Glucksman challenged Peterson, Lehman Brothers was more profitable than it had been at any point in its long history, averaging $15 million a month in pre-tax and pre-bonus profits over the preceding 12 months. With capital of almost $250 million, the firm ranked as one of Wall Street's largest investment banking houses, behind such names as Salomon Brothers; Goldman, Sachs; First Boston and Morgan Stanley. Unlike dozens of old-line firms that had already succumbed to the pressures of consolidation that had been reshaping Wall Street - W. E. Hutton; Loeb Rhoades; Hayden Stone; Hornblower & Weeks; White, Weld; Kuhn Loeb, for example - Leh-man had rebounded strongly from its difficulties of the early 1970's. Business was booming - partners were, by most standards, rich, and some senior partners were making almost $2 million a year in salary, bonus and dividends from their Lehman stock. And yet, such is the volatility of Wall Street today that, in a matter of months, Lehman was hemorrhaging, losing money and partners. That selling the firm seemed to be the only way to save it raises questions not only about the leadership of the new management team but also about whether private investment partnerships are des-tined to become dinosaurs. Business will go on, of course. And it can probably be said with confidence that the merged firm will offer a broader array of investment banking services to its cli-ents and that it might be managed more efficiently. What is lost is a connection to the past that stretched back 134 years and, like the persistence of daylight baseball at Wrigley Field in Chicago, rooted people to a set of shared traditions, a common memory. THE STORY BEGINS IN JULY OF 1983. John B. Carter,...
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