How Joe Gregory Ruined America

by StockJockey

Thursday, December 04, 2008 - 2:32 pm

Of all the mistakes I have made over the last year, defending a thesis that Lehman Brothers would probably survive was the worst. Did Erin Callan lie? Sure, but she was a CFO, and that is her job.

I have been surrounded by hedge fund managers for a long time - before David Einhorn started Greenlight, in any case. And while he had a solid thesis, I thought he had to be exaggerating certain aspects - that is his job. And I thought Lehman management could take steps to stave off the worst case scenario, and emerge as it looked circa 2000.

Monetizing Neuberger & Berman was part of it; that ongoing soap opera just ended as the existing management and employees assumed control, and attempt to right the ship. No doubt it was the only option they would consider - even a generous compensation retention plan might not have appealed to Neuberger employees, who probably had more fun with bankers than Ken Lewis. And had seen enough.

But I would have been a bit less skeptical of Lehman's eventual demise had I known about the hijinks surround Dick Fuld's top lieutenants, aka the "Huntington Mafia":

Like Fuld, Gregory started on the commercial-paper trading desk. By the 1980s he’d become a top executive in fixed income and was known as one of Lehman’s Huntington Mafia, because all four executives in it lived in or near that North Shore town and often commuted together. “It was said that the four of them decided the fate of the floor every day on their drives back and forth,” recalls one ex-colleague. “And you had to be in their good graces to survive on the fixed-income floor.” Vanity Fair

Gregory was the worst kind of Wall Street pond scum - the hatchet man for a boss whose ass got kissed near daily.

And while Gregory was generous with charitable donations, it was probably just another reason to throw money around:

Tired of the 90-minute commute, Joe bought a helicopter for the ride. When he realized the chopper couldn’t fly to Manhattan in inclement weather, he got a seaplane. Niki was known as the best customer at the high-end boutique where all the wealthy North Shore wives shopped; the store’s personal buyers came to the house, their arms filled with couture and cashmere. The Gregorys undertook a renovation of the Lloyd Harbor home that would cost, by one report, $3.5 million. They bought the Bridgehampton home for about $19 million in 2006 and hired a top local designer to do it up. One day Gregory called his staff out to admire the new Bentley he’d just bought for his wife. “Look at the dashboard,” he allegedly said. “It’s one piece of burled wood.”

By the end of 2006 Gregory was pushing Lehman employees to the brink, chasing new goals that ultimately doomed the firm.

At Lehman, Gregory set a new goal in 2007, according to a former colleague: he wanted Lehman to overtake Goldman Sachs, which was raking in huge profits by leveraging as much as 40 to 1. And he wanted Lehman’s share price to reach $100. He imposed ambitious targets on all of Lehman’s capital departments, targets that required taking big risks on deals that would become increasingly shaky.

As the real-estate market collapsed, so did those investments. For Gregory, the end came in June 2008, with the release of Lehman’s shockingly bad second-quarter numbers: $2.8 billion in losses, after months of confident pronouncements from the firm.

While there was more than one cook in Lehman’s kitchen, his inexplicable behavior to buy shit (cars, homes, helicopters etc) and spend money like a drunken sailor might make him patient zero in the plague that now infests the Globe.

While that might be a bit harsh of a judgment, Joe Gregory clearly lost his bearings, and connection to the real world, years ago.

You have to live in NYC, and work at a bank or asset manager to really understand how this can happen - and it certainly does not play in Peoria.

Throw this article in the time capsule, it pretty much says it all.

God damn bankers!
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Profiles in Panic
Vanity Fair

What it Costs
New York Social Diary
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Comments:

A star is born indeed....

Posted by on 12/05/2008 at 02:19 AM

She is sharp as hell...but I can’t believe, after all that time she spent with hedgies prior to her job, that she got caught up and entangled in the firefight with Eihorn.

I had dinner with the ex-MS CFO last Saturday - he was trained as an accountant, and has a post in the IASB. He is not as easy on the eyes as Erin.

Brad Hintz related how difficult it is to be Lehman CFO...it is a no-win situation.

The bankruptcy did not have to happen. But it was clearly a clusterfuck situation.

Oy.

Posted by on 12/05/2008 at 04:18 AM

wow, SJ, I didn’t you know you rolled like that man. I just figured you were a third year analyst with access to amazon.com for historical reference.

The reality is she was not responsible for Lehman’s shit show. Fuld wasn’t even responsible. Although I did “short” the fuck out of them on principal, their problem was simply one of a tack of transparency. Not but for Hank Paulson those bastards at GS (and MS) would have joined Lehman and Bear in Davy Jone’s Locker. The only one smart enough to realize they were sitting on top of a keg of dynamite was Thain. This is precisely because he could be objective having only recently arrived at Merrill. All these other guys were so connected to their firms they just assumed “we’ll survive this one, we always survived before”. But as Mr. Taleb points out, past survival IS necessarily the case in order to face present adversity. Such past survival IS NOT necessarily indicative of future survival.

P.S. Einhorn is hardly competent. His fund is barely up and this year is the most right he’ll ever be in his whole life. +4% and its all down hill from here.
P.P.S. I’m looking for start up funding for a market neutral hedge fund, can you ask Erin how much CSFB can chip in?

Posted by on 12/05/2008 at 06:20 AM

Oh and make that DOWN 20% for Einhorn.... that guy needs to get a new job, he clearly isn’t any good at his current one.

Posted by on 12/05/2008 at 07:03 AM

KO,

It is easy sit back now and pick through this and throw stones around.

I was a lot closer to the Bear situation than Lehman, but some skeptical managers I talk to regularly certainly did not expect Lehman to go away. I just can’t believe he did not take some sort of action, besides surrounding himself with yes men and firing the CFO once a year.

Of course Erin was not reponsible, but clearly something went down between Einhorn and Callan that turned it into a war for Einhorn. It was personal to some extent.

I am just not going to blindly believe what either side says. She was in a tight spot caught between Fuld and Einhorn, pretty much impossible.

In hindsight she talked to much, and they photo spreads would have been ok in another situation or industry, but got to be a bit much. She shows well though, and is very smart coookie.

The biggest mistake was not raising a few billion dollars in equity back in the spring when they might have been able to - maybe Erin pushed Fuld to do it but he shot it down. Who knows.

Einhorn has aquitted himself reasonably well in a tough year. I don’t buy into all this value manager and Einhorn worship that hit a peak in June, but give him more credit than you.

If it makes you feel better to come here and insult me, so be it. The fact is that I worked for the “original” quant, and then at 230 Park for long enough to meet some very talented managers, sit down with thousands of management teams coming thru town, run a couple billion for 3 other guys for a decade, and walk away from top quartile numbers the day I walked out the door.

Fun stuff, we had the best prime broker on the street too, in 1996, and now the biz has come full circle. Check out Hendry’s comments for that - I hope to see more small groups running $500 million, not they stupid huge funds that were vetted by asshat fund of funds that gave them the seal of approval before they blew up.

In my younger days I would rip your “skewed” view a new one, but lets face it Ken Lewis is probably a bigger douchebag than either one of us. My old friends, and competitors, from Montgomery mock him.

Might have to put that in print next week.

Good luck with the fund raising, I have done a bit of that lately and know money looking for a home. People have pulled back recently though, no surprise.

regards,

Posted by on 12/05/2008 at 01:18 PM