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.

Regulation To Boost Costs And Cut Profits

Investment banks' invitation to borrow at the Fed's discount window will ``come with a price tag,'' Gross wrote on Pimco's Web site today.

Leverage and gearing ratios of securities firms will in a few years resemble those of commercial banks - resulting in reduced profitability for major houses.

Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. will earn less and face higher borrowing costs because of increased regulation of investment banks, Pacific Investment Management Co.'s Bill Gross said.

These banks will likely be forced to raise expensive capital and/or reduce the bottom line footings of their balance sheets.

This will be costly, and bond spreads as well as stock prices should begin to reflect it.

Bloomberg – Fed Rules to Cut Wall Street Profits, Boost Costs, Gross Says

Guardian - New Capital Raising To Be Costly For Banks

Lehman Changes Its Head of Fixed Income – Third Time Since 2005

Feb 6, 2008 – Lehman’s global head of fixed income, Roger Nagioff, 43, is retiring from the I-Bank after just eight months in to the job. He joined Lehman in 1997.

In a statement Mr. Fuld CEO said: ``While we are deeply disappointed that Roger is retiring, we understand and respect his desire to spend more time with his family and pursue other interests.''

Mr. Nagioff will be replaced by Andrew Morton, co-chief operating officer of fixed income. As part of his promotion, Mr. Morton will join the firm’s executive committee. Mr. Morton, 46, joined Lehman in 1993. Before that he was a leading academic expert on interest rate modeling.

This is the third time since 2005 that Lehman has replaced its head of fixed income. Mr. Nagioff replaced Michael Gelband, who left Lehman last year to pursue other interests. In 2005, Gelband took over from Herbert McDade, who moved to run equities.

When he took over last year from Michael Gelband, who left the bank, Mr Nagioff was charged with speeding up revenue growth and further diversifying Lehman's business outside of the US. Mr Morton will have the same objectives.

In 2007, Lehman's revenue from fixed-income dropped 29% to $5.98 billion from $8.45 billion in 2006 as the firm suffered a decline in the value of mortgage-backed securities. Goldman Sachs's fixed-income sales rose 13 percent to $16.2 billion, while Morgan Stanley's revenue in fixed income fell 93 percent to $650 million from $9.29 billion.

Fixed income remains Lehman's biggest business in spite of the investment bank's expansion in equities and other areas.