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Little more than pocket change

12 September 2013 By Antony Currie

Lehman as it might have been … The following  is part of a special feature package marking the fifth anniversary of the collapse of the Wall Street securities firm. Breakingviews writers imagine what might have happened if post-crisis reformers had acted pre-crisis. Herewith a column  from that alternative archive.

New York – Monday Sept 15, 2008

The clawbacks set to be imposed by regulators on Lehman Brothers executives ought to go further. Disgraced Chief Executive Dick Fuld and his cohorts look likely to be the first to cough up two years’ back pay under the Save Our Bank Act’s new rules. Considering the billions of dollars of pain they have inflicted on holders of Lehman common and preferred stock investors and bondholders, though, they’re getting off easy.

On paper, Fuld alone may have to hand back as much as $79 million in pay. Much of that, though, was paid in stock that is now worthless. Nonetheless, clawing back whatever cash the Federal Deposit Insurance Corp can get its hands on would still look punitive to many.

But the bail-in wiped out stock that was worth $40 billion in March last year, required a $25 billion writedown on Lehman’s assets and forced bondholders to take a $50 billion hit to recapitalize the firm.

And while Lehman’s troubles only properly crystallized over the past year or so, Fuld has ruled the investment bank since 1994. It was his strategy to bulk up the firm over that time and to expand the mortgage risk it took that led to its demise.

It would be only fitting, then, for him to share more of the pain. He made almost $500 million between 2000 and 2007, according to documents being prepared by the House Committee on Oversight and Reform. Confiscating much of that would be a more suitable punishment for the man who ruled Lehman for 15 years until he led it into collapse.

Granted, it might not come all in cash. He owns, for example, four homes – a ski chalet in Idaho, an estate on Florida’s Atlantic coast, a mansion in Connecticut and a Manhattan apartment. Repossessing one or more of these as part of a more encompassing clawback would be a fitting punishment for one of the men most at fault for America’s mortgage mess.

 

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