Washington - Richard Fuld, the disgraced head of Lehman Brothers, said he took full responsibility for his actions ahead of the downfall of the 158-year investment bank, but said US regulators knew exactly what the firm's liquidity was and how it was pricing its distressed assets in the months before its collapse.
Despite his acceptance of his role before the collapse,
US lawmakers expressed outrage to Fuld about Lehman on
Monday, saying that Fuld, board members, regulators and
Congress all shared blame for its downfall.
"I want to be very clear. I take full responsibility for
the decisions that I made and for the actions that I took based
on the information that we had at the time," Fuld told a
congressional panel.
Fuld said Lehman took steps to reduce the firm's leverage
as market conditions worsened and by September 10, it had reduced its balance sheet by close to $200bn.
Five days later, Lehman filed for Chapter 11 bankruptcy
protection, leaving three major investment banks. Since then,
Merrill Lynch & Co Inc agreed to be taken over by Bank of
America Corp, and Goldman Sachs Group Inc and Morgan Stanley
said they would become commercial banks.
The US Securities and Exchange Commission loosely
supervised the five largest investment banks, including Bear
Stearns, for capital and liquidity levels. However, that
supervision was voluntary and the SEC ended that program given
that those banks have either collapsed or reorganized.
Fuld said that throughout 2008, the SEC and the Federal
Reserve "actively conducted regular, and at times daily
oversight of both our business and balance sheet."
"(Regulators) held regular price verification reviews. They were privy to everything as it was happening," Fuld said in
testimony delivered to the House Oversight and Government
Reform Committee.
Rep. Henry Waxman, a California Democrat who chairs the panel, is holding a series of hearings to find out what went
wrong and what changes are needed in financial services
regulation.
The committee obtained thousands of pages of e-mails and
other internal Lehman documents that "portray a company in
which there was no accountability for failure," Waxman said.
Regulators "failed miserably" to prevent Lehman's collapse
and its resulting impact on the US economy which forced
Congress last week to approve a $700bn bailout for the
financial industry, Waxman said.
The bailout empowered the Treasury Department to buy
mortgage-backed securities and is designed to thaw out frozen
credit markets and restore confidence in the markets.
Slings and arrows
However, US markets plummeted on Monday as a spate of
bank rescues in Europe intensified concerns about the global
financial system.
Lawmakers on Monday voiced opposition to the bailout bill
and blasted Lehman's actions.
Rep. Elijah Cummings, a Maryland Democrat, cited an e-mail
exchange in which George Walker, President Bush's cousin and a
member of the Lehman executive committee, mocked a proposal for
top company executives to forego their 2008 bonuses.
Walker responded to the proposal from a fund manager at
Lehman unit Neuberger Berman by saying, "Sorry, team. I'm not
sure what's in the water" at the unit's headquarters.
"In ... my block in Baltimore," said Cummings, "if they
perform poorly, they get fired. They certainly do not get a
bonus."
Another Democrat, Ohio Rep. Dennis Kucinich, questioned why
Treasury Secretary Henry Paulson decided to bail out American
International Group and other companies and not Lehman. One day
after Lehman filed for bankruptcy protection, US authorities
stepped in to rescue AIG with a plan to lend the insurer up to
$85bn.
Republicans on the committee also expressed outrage over
corporate behavior.
Fuld blamed several events for Lehman's downfall, including
abusive short selling, false rumors, credit agency downgrades
and loss of confidence by clients and counterparties.
Over the summer, Fuld said Lehman discussed with the Fed
the possibility of converting to a bank holding company, the
structure Goldman Sachs and Morgan Stanley have adopted.
Fuld said the Fed acted too late to broaden the types of
collateral that banks could pledge to create liquidity.
"Had these changes been made sooner, they would have been
extraordinarily helpful to Lehman," Fuld said.
- Reuters