obsession for both Fuld and Odrich (and was the hobby of choice at Lehman), but Fuld told him no, and said he ‘d make it up to him. (He never did.)
The presentation—a basic run-down of the businesses within Lehman, and what the economics looked like going forward—went over well, and the board signed off on the deal. Two memorable moments occurred, first, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil—eraser end first.
The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between “equity” and “revenue.” There was an awkward moment of silence as everyone digested this.
One person in the room recalls that Golub “did a very skillful job. I was very impressed. It’s a very basic concept, and he explained it to the former president without making it sound like he was talking down to him.”
----
On May 2, 1994, Lehman went public. By the end of the month, the spin-off complete, Golub reportedly exclaimed, “Let this puppy fly!” Cecil had been persuaded to come onboard—theoretically as chief administrative officer ( CAO ). Cecil understood implicitly that he was number three in the food chain, with Pettit immediately above him.
It was an arrangement that sat well with all three. Neither Pettit nor Fuld felt threatened by Cecil, who was aided in this regard by his unimposing physique and academic manner. Traders regularly joked about his analytical brain being woefully out of place in a bank made up of rough-and-tumble brawlers.
At one meeting Fuld said, “John, what do you think?”
“I’ m still thinking,” came the reply.
“Well, get yourself warmed up,” said Fuld. “We’ re waiting.”
But Cecil was a valuable member of the team. He was able to analyze the new bank objectively, identify its strengths and weaknesses, and give Fuld and Pettit guidelines for what they needed to do.
The short answer: There was a lot that needed fixing.
Despite the valiant predictions to the American Express board and the garish celebration held in the Winter Garden Atrium, a party venue in downtown New York where balloons cascaded down from the ceiling and where Lara Pettit recalls her father standing “very proud, upright, his fist in the air” reminiscent of a triumphant French revolutionary, the new Lehman Brothers was very fragile.
By September, Lehman began buying back stock from investors who owned fewer than 100 shares. Earnings in the second quarter of 1994 dropped 79 percent from the prior year, and profits fell by over half. In July, the employees who could afford to do so bought Lehman stock; Fuld sensed that at $14 the purchase would be a steal. He bought a lot.
By the end of October, Fuld owned more than 179,000 Lehman shares, the majority purchased at $25.54 per share; Pettit owned more than 132,000 shares. It wasn’t a tactic they could use forever, but it worked in the short term; and over the long term, it made them all very rich, at least on paper. “We had the last laugh,” says Ronald Gallatin.
“The stock did trade poorly initially,” says Cecil, “in part because there hadn’t been a market created for the stock, really, as a new company, but also because these shares were given to American Express shareholders, who really wanted to own American Express.” Those folks quickly dumped their Lehman stock, devaluing it.
Adding to the new company’s problems: In 1994 the Federal Reserve tightened interest rates, which, as a general rule, impacts the price of bonds negatively, and thereby weakened Lehman’s fixed income division. Its share price fell 30 percent in just five months, from $20 per share when it first went public in May to $14 per share in October. (In a final kick to the 14 or 15 executives on Lehman’s operating committee, Golub had made them buy the
The presentation—a basic run-down of the businesses within Lehman, and what the economics looked like going forward—went over well, and the board signed off on the deal. Two memorable moments occurred, first, when former Secretary of State Henry Kissinger, then on the American Express board, opened a sweetener packet, emptied it into his iced tea, then stirred the beverage with his pencil—eraser end first.
The second was when another board member, former U.S. President Gerald Ford, asked Golub if he could please explain the difference between “equity” and “revenue.” There was an awkward moment of silence as everyone digested this.
One person in the room recalls that Golub “did a very skillful job. I was very impressed. It’s a very basic concept, and he explained it to the former president without making it sound like he was talking down to him.”
----
On May 2, 1994, Lehman went public. By the end of the month, the spin-off complete, Golub reportedly exclaimed, “Let this puppy fly!” Cecil had been persuaded to come onboard—theoretically as chief administrative officer ( CAO ). Cecil understood implicitly that he was number three in the food chain, with Pettit immediately above him.
It was an arrangement that sat well with all three. Neither Pettit nor Fuld felt threatened by Cecil, who was aided in this regard by his unimposing physique and academic manner. Traders regularly joked about his analytical brain being woefully out of place in a bank made up of rough-and-tumble brawlers.
At one meeting Fuld said, “John, what do you think?”
“I’ m still thinking,” came the reply.
“Well, get yourself warmed up,” said Fuld. “We’ re waiting.”
But Cecil was a valuable member of the team. He was able to analyze the new bank objectively, identify its strengths and weaknesses, and give Fuld and Pettit guidelines for what they needed to do.
The short answer: There was a lot that needed fixing.
Despite the valiant predictions to the American Express board and the garish celebration held in the Winter Garden Atrium, a party venue in downtown New York where balloons cascaded down from the ceiling and where Lara Pettit recalls her father standing “very proud, upright, his fist in the air” reminiscent of a triumphant French revolutionary, the new Lehman Brothers was very fragile.
By September, Lehman began buying back stock from investors who owned fewer than 100 shares. Earnings in the second quarter of 1994 dropped 79 percent from the prior year, and profits fell by over half. In July, the employees who could afford to do so bought Lehman stock; Fuld sensed that at $14 the purchase would be a steal. He bought a lot.
By the end of October, Fuld owned more than 179,000 Lehman shares, the majority purchased at $25.54 per share; Pettit owned more than 132,000 shares. It wasn’t a tactic they could use forever, but it worked in the short term; and over the long term, it made them all very rich, at least on paper. “We had the last laugh,” says Ronald Gallatin.
“The stock did trade poorly initially,” says Cecil, “in part because there hadn’t been a market created for the stock, really, as a new company, but also because these shares were given to American Express shareholders, who really wanted to own American Express.” Those folks quickly dumped their Lehman stock, devaluing it.
Adding to the new company’s problems: In 1994 the Federal Reserve tightened interest rates, which, as a general rule, impacts the price of bonds negatively, and thereby weakened Lehman’s fixed income division. Its share price fell 30 percent in just five months, from $20 per share when it first went public in May to $14 per share in October. (In a final kick to the 14 or 15 executives on Lehman’s operating committee, Golub had made them buy the
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