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My anger over Lehmans’ $5 billion ‘betrayal’ of London
David Cohen, Evening Standard17.09.08
The day after the fall of Lehman Brothers, Robert Daniels, a director and a senior departmental head at the Canary Wharf headquarters, is sitting contemplating his future over a stiff espresso when an incongruous email drops onto his BlackBerry.
It is from Ravi Mattu, global head of research at Lehmans on Wall Street, and it says: “I am extremely pleased to announce that for the ninth year in a row, Lehman Brothers' fixed income research team is ranked number one in the annual institutional investor survey of 1,330 professionals at 490 institutions. This achievement is the direct result of a team effort and I want to congratulate the entire fixed income division for this tremendous honour.”
At first Robert, 36, a father of three who lives in Chelsea and who would have earned $700,000 this year, shows me the email as an example of the “bizarre culture of denial” that has characterised the past few months at Lehmans.
“I've heard of rearranging the deck chairs on the Titanic while it's sinking but not after the ship has already sunk,” he says. “If it wasn't so sad, it would be pretty hilarious.”
Woken on Monday by a 4am text from a colleague in New York to say that Lehmans had filed for bankruptcy, Robert has watched his $200,000-worth of Lehman shares (half of last year's bonus) dwindle to less than a prawn sandwich. He is shocked at how badly things have turned out, he says when we meet outside the company's gleaming offices, but as the day progresses, his resentment at being left “rudderless” for so long “and now jobless” will turn to anger.
He and his colleagues now know that the New York subsidiary of Lehmans is doing a deal with Barclays Bank to save its broker/dealer operation. “This is the disgusting bit,” he says, “it has been done at the expense of Lehmans in London.”
What does he mean? According to Robert, billions of dollars disappeared from Lehmans' London bank account over the weekend. On Fridays, he explains, London typically transfers billions to New York and is issued with a portfolio of assets in return. “It's a standard inter-company transfer that happens every Friday to fund the US assets over the weekend and every Monday the trade is reversed,” says Robert.
This Monday, he says, was different. “The money was not returned to our bank account from the US and all we were left with was a bunch of useless assets. Nobody can tell us where it has gone. What we do know is that the money disappeared on Friday night and did not come back into our account on Monday morning. That is why the administrators came in on Monday and found no cash and said they probably can't pay our September salaries.
“People were surprised, because a few days before we had over $5 billion in our bank account, now we suddenly couldn't even afford the $150 million September salary bill.”
From a legal perspective, the reason the money was not returned is straightforward: late on Sunday night, Lehman declared bankruptcy and as such all assets were frozen pending the liquidators.
But according to Robert and his colleagues, questions are being asked about the “fortuitous Sunday night timing” of the bankruptcy announcement — “at least as far as the US subsidiary of Lehmans is concerned”.
“A few hours later and those billions would have been back in London, making the London subsidiary cash-rich and a more attractive takeover target to potential suitors like Barclays than the hitherto cash-poor dealer parts of the US subsidiary,” says Robert.
“Most of the 4,500 London employees of Lehmans have no idea that we might have been sold down the river by our New York colleagues but those who do know are extremely upset. It's like we've been stabbed in the back.
“The consequences could be grave. It could be a huge legal issue, setting London Lehman employees against their New York colleagues. But it goes beyond who gets paid their September salaries. This is billions we're talking about, billions that have been moved overnight out of the UK to the US to the detriment of the British economy, and which might have to be repatriated to London.”
Robert, whose name has been changed at his request to protect his identity and who was headhunted to join LehmanS from another City bank two years ago, says that since thunder clouds began gathering over his company some five months ago, the top brass have attempted to keep middle management like him in the dark.
“Lehman is run by a very tight group of people who never consulted with us and hardly bothered to come to London. We called Richard Fuld [the chief executive officer nicknamed The Gorilla because of his obsession with weight lifting] the invisible man because he never put in an appearance. And when the big guns did come, like Kaushik Amin, global head of liquid markets, he told us nothing and showed no leadership.”
Robert recalls the morning meeting hosted by Amin a few weeks ago. “He addressed about 40 traders on the fourth floor and when he finished, the traders started telling him about other banks being reticent to trade with us and asking for reassurance as to our future. He said: Everything is fine, we're the market leaders.' Then he rebuked the traders for not wearing ties on the trading floor at all times.
“In retrospect you wonder: was he blinded by arrogance? Was he in denial? How could he tell us off for not wearing a tie at a time when the bank was going under?”
The first rumours of rain, Robert says, came in May this year when Lehmans posted its second quarter results showing losses of $2.8 billion, “the first time the bank had experienced negative earnings”.
“It showed that our micro-hedge strategy — of hedging our bets against a collapsing property market by betting on interest rates falling — had failed.
“Contrary to popular belief, the problem was not our exposure to the sub-prime market, which was acceptable, but rather our massive $85 billion investment in the commercial property market which had suffered the knock-on effect of the precipitous collapse in the residential housing market.
“The losses caused a great deal of anxiety inside the firm, and speculation from other bankers, that we were about to go the way of Northern Rock and it meant that some other banks didn't want to trade with us any more.
“The response by the top brass was to get us managers to go out and see clients to tell them it was just a blip' and that Lehmans was very much in business'.
“But one by one, clients that had been trading with us for years started to make excuses and shy away from any exposure to us.”
As confidence drained away, Jeremy Isaacs, chief executive of Lehmans in Europe, the Middle East and Asia, arranged for a Q&A session last June to calm his employees' nerves. There was only room for director level and above as 200 bankers crammed into Lehmans' ground floor auditorium.
“Isaacs told us that some bad decisions had been made but he pinned it on two individuals — operating officer Joe Gregory and the chief financial officer Erin Callan — who had both since been fired and he said that everything was going to be fine.
“His mood was a mixture of confidence and arrogance and he succeeded in reassuring many of us that it was inconceivable the bank would fail. At that stage, we knew there was a hole in the hull but none of us — except perhaps Jeremy — had any idea just how large it was.”
For months the bank limped on, trying to implement a new strategy of raising fresh capital and turning away from real estate towards a commission-based income model. The former led to failed talks with the Korean Development Bank, the latter foundered because of speculation as to mounting third quarter losses that caused clients to shy away.
For Robert, it was a confusing time. His own division, he says, had an incredible year and posted record profits for the second year running. “In our section, we were making hundreds of millions for the bank. It was hard to keep reminding ourselves about the bleak bigger picture.”
Three weeks ago, staff were informed of the new “good bank, bad bank” strategy, whereby the toxic commercial real estate assets were to be hived off into a separate company and the good profitable bits kept in Lehman Brothers. Last week the market responded to this strategy, along with the announcement of third quarter losses of $3.9 billion, by knocking 45 per cent off the value of the shares. From a high of $60, the shares were worth just $7.79.
“At that point, the atmosphere inside our Bank Street office was frantic. We knew there was no longer a strategy and that what we desperately needed was a buyer to bail us out.”
Nevertheless, says Robert, even as late as Friday night, he felt 100 per cent convinced that Lehmans would survive and that Barclays or Bank of America would buy it out. “I would have bet anything on it. I went to bed on Sunday night fully expecting to go in for business as usual on Monday.”
Is he worried about his future? “Yes,” he says. “Although I live frugally compared to your typical banker, I have three young children at private schools. My wife and I sat up last night working out that we have enough money to survive for six months. It won't be easy getting a job in the current conditions. Some of my colleagues have already been out interviewing today but nobody I know has had any luck.
“There was a lot of stress in the building on Monday with some people angrily packing their belongings in boxes and leaving. Today it's quieter. I came in late after taking my seven-year-old son to school. He wanted to know why I was taking him, because I never do. I said: Because I've lost my job.' He said: Good, maybe now I'll see more of you.' His perspective helped take the edge off, I suppose.
“But then I saw a colleague who has been at the bank a long time and who has lost $10 million — all his bonuses, vested in shares, are now worth nothing. I think we're all beginning to understand that banking is a risky business. Sometimes you hit the bar, and sometimes the bar hits you.
“Right now, although there are a lot of bankers with very sore heads, we are determined to get to the bottom of what's happened to the billions of dollars that were transferred late on Friday to New York and that were never returned to London.”
Reader views (23)
700K or not, my sympathies are with "Robert Daniels", for it's not pleasant to get lobbed out of a job through no fault of your own, whatever you earn.
As for the detractors - I wonder just how much of that is begrudgery? I used to be like that too, until I grew up and realised the chip on my shoulder was put there by myself, no one else. I realised that all the big earners, the multi-millionaires, don't hide their money under the mattress, it's out there being re-invested and working for all of us.
After all, a rich guy is the same as me - he can only be in one room at a time of his mansion - and his mansion has to be built in the first place by ordinary blokes, like me.
- Dave Henderson, Luton, UK
I use to work at Lehman Brothers lin London and the the majority of people are on normal salaries, we worked really hard and long hours also on call when you are on holiday, sometimes having to cancel their holidays and agree with every thing Robert has to say. I thought the London office always worked a lot harder than the counterparts in the US and feel really sorry for the guys in London, there are a lot of back office staff, people that worked in the restaurant that are also now out of work, all these people were not on huge salaries and are having to support their families also the outsourced staff out in India will probably be laid of as well.
- Ex Lehman Employee, UK
Its true - every single bank worker is greedy and everyone at Lehmans deserved to lose their jobs! I should know - i work for a bank in Docklands myself, all we do all day is sit in the boardrooms, smoking cigars, counting our millions and looking down on everyone else!
WAKE UP! All these horrible comments sum England as a nation up - just bloody ignorant. Approx. 97% of bank employees are on normal wages with mortgages and bills to play like everyone else - its disgusting that a majority of the country are finding some joy in seeing other normal peoples misfortune, and make me sad to be British.
- City Worker, London
Yes it's sad for the people who have been affected who are not in the top 5% of high earners. Can I just ask though, what is the the 'average wage' in the City these days?
- S-M Hearmon, London, UK
Boy, you people have some pretty disgusting comments. Do you have any idea how hard these people work? I used to work at Lehman. I wasn't a big shot by any means, but I worked bloody hard. At my desk at 7am - out usually by 10pm - on call all weekends. The point of the article is that the big shots at Lehman were always treating the "little people" like crap. Of 7,000 employees, I would say there were about 200 jackasses, the rest very hard-working decent people. The economy is the UK is rubbish - the only thing holding it up in part are the City banks - People - get educated and get a grip - this is a tragedy - oh! and for you people out there mocking a huge salary, somebody in Kenya making $12 a month could look at you and not understand how, if you lost your job at Tesco, could only get by for 6 months. It is all relative. I lived in the UK for 2 years and it really is a souless nation - good grief!
- Tess, Phoenix, AZ
$150 million for the September salaries of 4,500 London employees works out to about $33,300 each, 16,000 quid A MONTH EACH. My heart bleeds!
- Ciccio, Toronto, Canada.
Susieq of Essex how dare you put down private schools. Lehman Brother's "Robert" is entitled to decide his children's education.
Plus, I notice you refer to "9-12 GCSEs apiece" yet don't mention any grades.
That's the state school vs private school difference.
You and your state school focus on and celebrate the number of GCSEs that a pupil passed.
Whereas, the private schools focus on and celebrate the number of A and A* grades that a pupil achieved.
- Chris, London
Why be surprised at the behaviour of Lehman's New York staff. It's their nature, it's in their DNA. The money you dealt with was make believe money anyway.
- Ian, East Grinstead, UK
one of those 'bog-standard' comprehensives.... he didn't say that did he, so why put it in quotes? Kids having to leave their schools and their friends is sad too, not their fault if dad had a good job!
- Deadhead, Greenhithe
No one feels sorry for the bankers, which I find sad. They pay a lot of taxes, the employ (personally) staff which they will probably have to let go - cleaners, housekeepers and nannies who earn a pittance anyway. As for banks failing and merging think of this. For every person earning millions of dollars there are 30 or 40+ people on an average wage. Secretaries, administrators, human resource staff, people in the post rooms, security guards, cleaners, canteen workers, chauffeurs, window cleaners any many others will all have lost their jobs too. The sandwich bars and cafes and pubs will also need to let people go as their takings decrease. Millions if not billions are wiped off our pensions. Stop the sanctimonious comments and try looking at the bigger picture. When a company like this fails, we're all affected.
- B, London, UK
Well, "Robert", don't worry about the fate of your three children at private schools...there are things called STATE schools where 93% of the population have their children educated.
Don't worry, my son & his friends all managed to get 9-12 GCSEs apiece this Summer at one of those 'bog-standard' comprehensives....
- Susieq, Colchester, Essex
I can't believe this has been allowed to happen. The comments from other people also disgust me, this is people lives we're talking about here. For you to call even the 'workers' greedy just shows your ignorance. People work for money, not for the love it. Let's all hope nothing like this ever happens to you!
- Anon, London, London
Perhaps that would be the same high court judge who accepted a deal for the judges and the numerous MPs who should have lost large parts of their pension money with Equitable Life (as did many unfortunate non-politicos), though instead they fixed a deal so they could take their money out with no penalties.
Presumably none of the commentators below work for the public sector, an organisation so hell bent on smoke-and-mirrors accounting, massive though unseen debt, huge speculation on specific economic outcomes and zero integrity at the helm (think MPs and their expenses, council 'workers' and their commitment to the community, all those hard working politically correctness advisors).
Or what about all those people who speculate on property (presumably not motivated by greed at all), which would be most of the country.
It's all very well for Ingrid Z to make these comments, though her country hasn't been turned into a taxed-to-death third world theme park where the cost of raising a family requires a six-figure salary in its capital (or no salary at all). Then she might show some sympathy.
- Dj, UK
This bloke is a Trading Director, the top 5% of the City. The majority of people that got zapped on Monday were on an average wage. It's like saying that all musicians earn as much as Robbie Williams!
- Joe, London
It is the huge salaries and massive bonuses paid to the likes of Mr Daniels that have fuelled the rise in house prices,in London especially, and forced many people who feared they were being priced out of the housing market for ever to take on loans they could not repay if prices fell. A vicious circle, but on £700,000 a year Mr Daniels will have a little put aside, I presume
- Celiad, London,UK
Bankers have always shown a callous disregard to the plight of others. So I'm being callous back - in the real world of real salaries outside London of around £25,000-£30,000 a year, there is absolutely no sympathy for those on mega salaries and even more mega bonuses.
Cheerio Lehman's and other bankers - your greed has lead to pensions of the ordinary people in Britain in dire straits. Farewell and no thanks.
- Christine Warren, Rickinghall UK
I read some of these comments with dismay. The majority of City workers are just like me, not greedy and we certainly don't get salaries or bonuses like "Robert". I am sure that having earned 700K a year there is more put by than someone who is on 40K, especially as that 40K puts you in the top whack tax bracket. The big guns always look after themselves it is the smaller fry who suffer from greed and idiocy of the few.
I have yet to hear of a Tesco worker expected to put in a miminum 50 hour week or if they did there would be a union to look after them which we don't have in the City as these things are expected and if you don't work it plenty of others will.
- Lou, London
An interesting article. Clever (?) , but not clever enough to get out ahead of the crisis!
- Nigel Howse, Baltimore USA
I have no sympathy for these 'workers'. And it just goes to show that there is no honour amongst thieves.
- Simon, Canterbury
I can have no sympathy whatsoever for anyone involved in any bank reeling under the collapse of the financial system and corporate bankruptcies. To quote a recent high court judge, "they are bereft of the basic instincts of commercial morality." I have yet to meet a banker who is not solely motivated by greed and therefore the current crisis is only of their own making.
It is tim they learnt some humility and got a proper job.
- Nigel Henderson, Tayside
Well boys and girls...There are plenty of jobs at my local Tescos. Better get in quick though.
- Mark.H, London
These people do not live in the real world. To say he only has enough money to survive for 6 months when his annual salary was $700,000 is absolute nonsense.
- Patrick Griffin, Dalston, London
I feel sorry for people on those massive salaries, they have no idea how it is for the rest of us, while they carry on gambling with the world economy all the time hiding behind corporate babble. Moral: Never trust someone with the name AMIN - remember Idi?
- Ingrid Zimmermann, Amsterdam, Netherlands
