Lehman Looses Wall Street’s Most Powerful Women

Erin Callan resignation and her new post

Erin Callan joins Credit Suisse after serving Lehman Brothers for 13 years, having most recently served as CFO and a member of the Executive Committee. The move comes a little more than a month after Ms. Callan, 42, was demoted as CFO.

At Credit Suisse, Ms. Callan will be a Managing Director and Head of its Global Hedge Fund Business. In this newly created position, Ms. Callan will join the Investment Bank Management Committee and the Global Client Steering Committee.

What she did at Lehman

Ms. Callan was the first woman ever to serve on the firm's 15-member executive committee. Ms. Callan started at Lehman in the fixed-income department and then rose to advise hedge fund, Callan led some of the most important initial public offerings in the financial world in recent years, including those for the Blackstone Group and Fortress Investment Group.

Lehman Brothers has appointed Erin Callan in Sep 2007, succeeding Chris O’Meara, the firm’s CFO since 2004, who was named global head of risk management.

In June 2008, Callan was demoted, at that time, Lehman chief executive Dick Fuld said Callan would be rejoining the firm's investment banking division "in a senior capacity."

During her short tenure as CFO, Ms. Callan, a brassy and articulate banker who started out as a tax lawyer, pushed management to be more transparent with results and met with hundreds of Lehman investors to make the case that the firm’s business was fundamentally sound.

Reasons for departure

Ms. Callan struggled to regain investors’ confidence after Lehman reported a large, unexpected loss for the second quarter of 2008. She has very little formal hardcore financial accounting experience and her frequent appearances on television had led many to suspect she was more of an extremely well-paid spokesperson than a hands-on executive. And more over CFO is often the first to shoulder the blame when the stock price plunges 40% in one day.

According to the WSJ, She receives a slimmer daily financial summary than her predecessors, relying more on data from the trading-floor contacts built during her 13-year Lehman career. Ms. Callan said "We have a lot of great finance people here." In the CFO seat in this environment, I find it is important to be able to look at the sum total of the information quickly and test conclusions as well as read the reports on my desk."

That looks like management delegation that got a bad reputation on streets

Why Credit Suisse

Credit Suisse has been building its hedge fund business to catch up with rivals Goldman Sachs and Morgan Stanley, which have the largest market share of the prime brokerage business.

Bank Consolidation - Under the Hammer

LIKE plane-crash survivors forced to eat their fellow passengers, investment bankers have found some sources of nourishment amid the wreckage of the banking industry. Goldman Sachs notched up a 72% increase in equity-underwriting revenues in the second quarter, much of it from other banks. Now many have their eyes on M&A deals.

Why banks need to consolidate?

Weaknesses in funding and business models have been laid horribly bare. Some banks were too focused on the wrong markets. Wachovia, America’s fourth-largest bank, has suffered from outsize exposure to California’s imploding housing market and is a potential takeover target. Others face regulations that threaten their profits. Lehman Brothers is at the centre of many of them.

Problems for Buyer

More importantly, buyers are scarce. - Deutsche Bank is under pressure to bring down its leverage ratio. Barclays raised £4.5 billion ($9 billion) in June, but is still more thinly capitalised than many of its peers. HSBC has been burnt by its disastrous acquisition of Household.

Due diligence on banks structured-credit exposures remains a nightmarish prospect for would-be acquirers.

Liquidity is also now a big part of buyers’ calculations. Few want to bump up the amount of debt that needs to get rolled.

Accounting standards add to the complexity, by requiring acquirers to account for the assets and liabilities they buy at fair value.

Regulators themselves may set up roadblocks to deals, either because they take a generally dim view of capital-sapping acquisitions or because of the rules.

Banks Present Status

Banks’ need for capital is not yet satisfied and there is mounting concern that investors are less willing to inject cash into sinking assets. Disposals are the obvious escape route. Bidding is under way for Citigroup to offload its German retail operations.

The big question, of course, is whether that will keep bank finances shored up long enough for markets to stabilize. If losses continue to spiral, capital dries up, and disposable assets cannot find purchasers, banks will have little choice but to cut back even harder on lending, or to take whatever price they can get.

US SEC OK with investment bank efforts on capital

July 14 - The U.S. SEC Chairman Christopher Cox said he is very comfortable with what investment banks are doing to strengthen their balance sheets.

Cox said the Federal Reserve and the SEC are in contact every day with the country's largest investment banks, including Lehman Brothers (LEH).

"We are very, very comfortable that they are all doing the right thing in trying to strengthen their balance sheets, raise more capital and be in a position to weather these very difficult storms," Cox said.

Is any bank CEO safe from the credit crunch?

June 2, 2008 - Today, Wachovia CEO Ken Thompson became the latest to be shown the door. The bank anounced that its board forced Thompson to retire from the company he has run for eight years. The move comes just 24 days after Thompson lost his job as chairman. Lanty Smith, the man who succeeded Thompson as chairman, will become interim CEO.

So what happened? The simple answer: An acquisition gone bad. Thompson, it would seem, was brought down by the ill-timed acquisition in 2006 of Golden West Financial, which caused Wachovia to post steeper-than-expected losses in April.

Wachovia CEO G. Kennedy Thompson stepped down, weeks after losing his chairman role and roughly two months after raising $7 billion.

RBS Cash Call

On 22-Apr-08 the Royal Bank of Scotland said that it planned to raise 12 billion pounds ($23.7 billion) through right issue.

The Right issue or the sale of shares to existing shareholders is an attempt by RBS to restore its capital base.

The rights issue marks an embarrassing U-turn for the bank.

Less than two months ago, the bank said it did not need to raise capital.

On 22-Apr-08, Sir Fred said the cash was required because "the world had changed".

RBS deserves credit for being the first U.K. bank to admit it needs significant help from shareholders.

The issue, which will be sold at a 46% discount to21-Apr-08 share price, will swell the share count 60%. To top it off, the bank will cut its cash dividend per share.

The bank said the rights issue would raise its Tier-1 capital ratio — a measure of financial strength — to 8 percent and its “core” Tier-1 capital ratio — the most liquid type of capital and a key measure of financial strength — to 6 percent by the end of 2008. The minimum for U.S. banks to be viewed as well-capitalized by regulators.

Pressure is mounting on Goodwin and the bank's chairman Sir Tom McKillop following £12bn call cash. RBS board is letting Mr. Goodwin stay. His supporters think the bank needs him for the integration of ABN.

The chairman Tom McKillop defended the chief executive Fred Goodwin, saying “our executive team has all the ability to steer the bank through this tricky period in financial markets.”

The bank has announced the appointment of three extra non-executive directors, in what some have seen as a move to reduce Sir Fred's dominance.

RBS's credit ratings came under pressure, with Fitch Ratings cutting one notch to AA and Moody's Investors Service warning it could strip the bank of its Aaa rating. Standard & Poor's said it maintained a negative outlook on the bank.

Go to Article from The New York Times »
Go to Article form MakrketWatch »
Go to Article from Bloomberg News »

Go to Article from Reuters »

Banks Suffer Reputational Loss

The credit crisis has provided an opportunity for mid-sized and regional banks that avoided its worst effects to take business away from the large banks.

In a survey of 300 companies across the world taken prior to the collapse of Bear Stearns, the only two large I-banks whose reputations have been enhanced by their performance throughout the crisis are, unsurprisingly, JP Morgan and Goldman Sachs.

All other large banks have seen their reputations decline or, at best, were unscathed.

Geographically, US companies thought higher of regional banks such as Wells Fargo and foreign banks with small US franchises such as Royal Bank of Scotland/ABN Amro.

Financial News Online .. Banks Suffer Reputational Loss

Underwriting: Q1- 08

Citigroup Inc missed its title as the world's largest underwriter of stocks and bonds for the first time in more than six years, said Thomson Financial.

According to Thomson, Securities underwriting volume fell by 45% from a year earlier to $1.27 trillion, and fees collected by I- banks fell 47% to $5.8 billion.

JPMorgan Chase & Co was the top underwriter in the first quarter. JPMorgan arranged $129.4 billion of offerings, winning a 10.2 percent share.

Citigroup followed with $94.7 billion of offerings and a 7.5 percent share.

Deutsche Bank AG was third, with $91.8 billion of offerings and a 7.2 percent share.

Reported fees fell by 7% to $3.38 billion from $3.65 billion.

Citigroup led in that area with a 15.6 percent share, followed by Bank of America Corp's 8.9 percent and Goldman Sachs Group Inc's 7.8 percent. JPMorgan was fourth.

Wall Street bankers said Citigroup's fall from first place partly reflected a change in strategy by its new management. Citigroup in a statement said it manages its business "for productivity and profitability rather than league table position."

Bear Stearns Cos, a fixed-income specialist that agreed to a takeover by JPMorgan following liquidity problems, ranked 18th in underwriting and 23rd in reported fees.

Merger volume, meanwhile, fell 41 percent worldwide and 56 percent in the United States, Dealogic said last week, suggesting lower need for future bond and loan offerings.

"There was a total contraction in credit," said Richard Peterson, director of capital markets at Thomson. "We don't know if there are more hidden time-bombs. The market is sensing there could be more."

News & Related Links

Reuters – Citigroup dethroned in dismal underwriting quarter

Financial Week – Citi finally knocked off its throne as top underwriter

Wall Street Journal – Debt Turmoil Hits Street Stock, Bond Sales