WASHINGTON — Richard Fuld, former chief executive of Lehman Brothers, told lawmakers Tuesday he never assumed the U.S. government would bail out his company before it filed the biggest bankruptcy in history in September 2008.
“We did not need a capital bailout,” Fuld said in testimony before the House Financial Services Committee. “We needed a liquidity bridge” that would have bought Lehman time to be acquired by another company.
Lehman’s bankruptcy roiled markets and exacerbated the global financial crisis. Lawmakers asked Fuld at the hearing, which was convened to explore management and regulatory failures that may have contributed to Lehman’s collapse, whether he took excessive risks because the firm expected a government rescue.
“It was a loss of confidence,” Fuld said when asked why Lehman failed. “We could not convince the world about the condition we were in. We had a solid plan.”
Fuld said he had discussions in 2008 with then-New York Federal Reserve president Timothy Geith ner about firms that were considering investing in Lehman. Geithner, now Treasury secretary, told members of the House panel that there are few better examples than Lehman of why the U.S. needs to overhaul regulation of financial firms.
A focus of the hearing was allegations from Lehman’s bankruptcy examiner that the company misled investors by moving assets off its books at the end of quarters to reduce leverage. The examiner, Anton Valukas, said Lehman used transactions known as Repo 105s improperly by accounting for them as assets rather than financings.
Fuld said he had “absolutely no recollection whatsoever hearing about Repo 105 transactions while I was CEO.”
He said Lehman accounted for the deals as sales because accounting rules required it to do so.
The company violated its own risk-management rules with the knowledge of the Securities and Exchange Commission, Valukas said.
“We found that the SEC was aware of these excesses and simply acquiesced,” he said in a statement.
Lehman brothers’ collapse
Securities and Exchange Commission Chairwoman Mary Schapiro pledged better oversight of the nation’s largest banks before House lawmakers, saying a bankruptcy examiner found last month that Lehman used accounting tricks to mask its precarious financial condition before its collapse in September 2008. Richard Fuld, above, Lehman’s former chief executive, said he has “absolutely no recollection whatsoever” of the maneuver, known as Repo 105.
WHAT’S TO COME
A letter has been sent to the CEOs of the 19 largest U.S. banks asking them about whether they are employing similar strategies, Schapiro said during a House hearing into what led to Lehman’s collapse. “It’s not clear any action by the SEC could have saved Lehman Brothers, but we are determined to use the lessons of that experience to be more effective,” Schapiro said.
IMPACT
$1.7 billion The economic hit to 40 municipalities nationwide from the collapse of Lehman, according to Rep. Anna Eshoo, D-Calif.; she says local services in her home area of San Mateo County have suffered a $155 million impact since September 2008.
