Dick Fuld: Still Alive and Kicking

Will the soap opera at Lehman Brothers (LEH-NYSE) come to a conclusion this weekend?

Perhaps, but I am not holding my breath. Late August has never been a period of great productivity on the Street, although the Korean's probably did not get the vacation memo. But even if you are busting your hump, getting counterparties to pick up the phone this time of year is next to impossible, and work inevitably slows to a crawl.

The asset management operations at Lehman are a big part of the ongoing shell game; perhaps you recall reading about the overlooked subsidiaries here first, or at least early on when many people had trouble distinguishing Blackstone from Blackrock.

Bloggers and journalists have been predicting Dick Fuld's demise for months now, but he is still standing, punch drunk or not. Fuld's antagonists have valid points, but clearly have no grasp of history when it comes to handicapping Lehman's crafty executives.

After American Express bought Lehman in the mid-80's many executives decamped for greener pastures. Several ended up hooking on with media banker Roy Furman and hedge fund pioneer Bernard Selz. They spent a few years dressing Furman Selz up before selling it to Xerox two weeks before the crash in 1987.

I don’t know why Xerox bought a boutique investment bank at the height of the 80’s boom, but the Lehman alums fleeced them on the sale. Several years later Xerox threw in the towel and the sellers bought the shop back for a pittance.

They went on to build one of the most successful prime brokerage operations on the Street while beefing up their banking, sales and trading and asset management operations before selling the firm to ING Group in 1997-’98 for twice its true value.

They stuck around to collect their retention packages while the Dutch figured out they had been bamboozled, and unceremoniously kicked the last of the Lehman boys out of 230 Park, but the damage had been done, and Ed Hajim and company lined their pockets.

Do the Korean’s have a sense of history? They are up against a pretty smooth operator.

Fuld no doubt has some tricks up his sleeve. He might be able to sell Neuberger and Berman for $5 billion before the talent walks out the door and sets up shop across the Street. This would allow him to retain Lehman’s private client asset management group, which is getting confused in much of the internet chatter, and mixed in with Neuberger. But it is hard to value Neuberger at much more than $5-$6 billion, and securing their cooperation, probably in the form of generous earn-outs or stock options, is key to a deal.

Holding on to the private client brokers, who are longtime Lehman employees as opposed to the mercenaries at Neuberger, might satisfy the ratings agencies who objected to Merrill’s sale of their Blackstone stake, threatening to downgrade Merrill’s debt if the transaction took place.

Monetizing Neuberger will offset some, but probably not all, of the writedowns Lehman needs to take. But it will help, and might be part of the bigger picture deal they are working on, or contemplating.

But if history is any guide Fuld will come our of this in fine shape. Yes, he might not be running Lehman forever, but he will probably find a way to line his own pocket.

If he is forced to leave the broker dealer perhaps he will set up shop to buy some of Lehman’s impaired assets, hoping to buy assets on the cheap and flip them out several years down the road. Or maybe he will end up running the remaining asset management operations (private client or alternative asset mgmt), which could eventually be spun out of the parent once the outlook improves and the medicine is taken.

But those who are counting Dick Fuld out are probably wrong. This is merely another opportunity for him to make a windfall.

Yes, somebody is going to get screwed here, but if past is prologue, it won’t be Fuld and his top lieutenants.

And in 2013 we might be talking about Fuld’s big score of 2008.

Bank on it. Even if Lehman goes to zero.

Although I certainly do not expect Lehman to turn into a bagel.
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Herbie was not immortal, but Dick Fuld is proving to be....

Herbert Lehman (1878-1963)
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Update:

ASIAN INFLUENCE-A
TALK IS HEATING UP ON KOREAN BUYOUT OF LEHMAN
New York Post
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The Bell Tolls for Thee, Richard Fuld
New York Magazine

Bove Note On Lehman
FT Alphaville

Furman Selz LLC (A): A Tale of Two Acquisitions
Harvard Business Publishing
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