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Lehman's former chief collects $484.8 million

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Committee chairman Henry Waxman: 'While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice.' Photo: KAREN BLEIER/AFP/Getty Images

Committee chairman Henry Waxman: 'While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice.' Photo: KAREN BLEIER/AFP/Getty Images

Committee chairman Henry Waxman: 'While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice.' Photo: KAREN BLEIER/AFP/Getty Images

Lawmakers lashed out at Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld, peppering him for two hours with queries about excessive Wall Street pay and his failure to acknowledge the firm's financial woes until it was too late.

Lawmakers lashed out at Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld, peppering him for two hours with queries about excessive Wall Street pay and his failure to acknowledge the firm's financial woes until it was too late.



''How do you lose all common sense?'' Representative John Sarbanes, a Maryland Democrat, asked Fuld yesterday, early in a hearing before members of the House Oversight and Government Reform Committee.



Fuld repeatedly took responsibility for the wrong-way bets that led to Lehman's demise. ''I feel horrible,'' said the 62- year-old banker, who spent his entire career at the now-bankrupt firm.



The Lehman executive became a surrogate for Wall Street's calamities in the first of a series of hearings into the credit crisis and mortgage-market meltdown. The lawmakers wondered out loud how well-compensated financial experts such as Fuld couldn't have predicted the end.



Representative Michael Turner of Ohio, a Republican whose district has been hard hit by foreclosures, accused Wall Street executives of ''stealing.'' Democratic Representative Diane Watson of California called it ''greed out of control.''



Lawmakers from both political parties took particular aim at Fuld's compensation, which Committee Chairman Henry Waxman of California said has totaled $484.8 million since 2000.



''While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice,'' Waxman said. Displaying a chart showing the value of Fuld's salary, stock options, and bonuses, Waxman asked whether it was ''fair'' that he collected $484.8 million since 2000.





Worthless





''That is almost half a billion dollars and that is difficult to comprehend for a lot of people,'' Waxman said. ''Your company is now bankrupt, our economy is in a state of crisis, but you get to keep $480 million. I have a basic question. Is this fair?''

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Fuld replied that the figure was probably closer to $250 million, and came mostly in Lehman stock, which is now worthless. ''The vast majority of stock I got I still own,'' he said, noting that he is probably among the firm's biggest shareholders.



''I don't expect you to feel sorry for me,'' Fuld told the committee. ''I got no severance, I got no golden parachute, I got no contract. I never asked for a contract. I never sold my shares. I had 8 million of them. I believed in this company.''





'In the ground'





Fuld was awarded $40 million last year, when the firm reported record earnings of $4.2 billion.



''I wake up every single moment thinking, 'What could I have done differently?''' Fuld said. ''This is a pain that will stay with me the rest of my life.''



Lehman, once the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create. The 158-year-old company collapsed after concern about losses from its mortgage portfolio spooked investors and creditors. The mortgage meltdown forced Bear Stearns Cos. and Merrill Lynch & Co. to sell themselves to bigger banks. Lehman declared the biggest bankruptcy in history, after failing to find a buyer.



Asked why the U.S. government decided to rescue insurer American International Group Inc. from collapse, and not save Lehman, Fuld replied, ''Until the day they put me in the ground, I will wonder.''



Fuld's comments marked his first public appearance since Sept. 10, five days before New York-based Lehman filed for bankruptcy.





20-20 hindsight





He described a cascade of events that pushed Lehman to the brink, even as Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Hank Paulson assured the public that the crisis in the mortgage markets would not spread.



''I too said what I absolutely believed to be true at the time -- that the worst of the impact to the financial markets was behind us,'' Fuld said. ''With the benefit of hindsight, I can now say that I and many others were wrong.''



Fuld made the upbeat comments at the company's annual shareholder meeting in April, when Lehman was trading at about $40 and had more than 28,000 employees in 28 countries. Less than six months later, the company declared bankruptcy.



''We did everything we could to protect the firm,'' Fuld said. Lehman shuttered its mortgage origination business, shed 38 percent of its real-estate assets, and cut debt.



Throughout 2008, regulators from the Securities and Exchange Commission and the Fed conducted almost daily oversight of the company's businesses and balance sheet, reviewing their decisions on how to value mortgage-related assets, Fuld said.





Bank-holding





During the summer, the bank discussed with the Fed the possibility of converting to a bank-holding company, a move designed to give the firm access to deposits as a source of funding. The discussions were fruitless, the CEO said. Days after Lehman filed for bankruptcy, the Fed took ''expedited action'' to approve applications by Lehman's larger rivals, Goldman Sachs Group Inc. and Morgan Stanley, to become bank-holding companies.



Lawmakers asked whether Fuld misled investors during a Sept. 10 conference call in which he said the company's capital reserves were adequate. Representative John Mica, a Florida Republican, asked whether Fuld knew at that point that the company wasn't going to get an investment of $3 billion to $5 billion from Korea Development Bank.



Fuld said talks with KDB weren't related to capital requirements. ''There certainly was no intent to mislead,'' he said.





'Massive disruption'





The congressional committee is looking into regulatory mistakes and financial excesses that led to the bankruptcy filing. The company's implosion ''sparked a financial crisis on Wall Street that is causing massive economic disruption,'' Waxman said in a written statement.



Fuld, the longest-serving CEO on Wall Street, is the only Lehman executive appearing before the committee. Former AIG Chief Executive Officers Robert Willumstad and Martin J. Sullivan are scheduled to testify today.



Congressional lawmakers investigating Wall Street's failures are among the politicians who have benefited from Lehman's success over the years.



Since 1989, Lehman employees have given $9.2 million to federal candidates and their parties, with 54 percent of that going to Democrats. In the current Congress, 271 lawmakers have collected a total of $3 million. Democratic Senators Hillary Clinton of New York and Barack Obama, the Democratic presidential candidate, top the list of all-time recipients, collecting $410,000 and $395,600 respectively, the Center for Responsive Politics reported.





Largesse





The only companies to donate more to presidential candidates so far this election cycle were Goldman, Citigroup Inc. and Morgan Stanley, according to the center, a non-partisan government watchdog group.



On the oversight committee, Representatives Chris Shays, a Connecticut Republican, and Carolyn Maloney, a New York Democrat, are the top recipients of Lehman largesse, taking in $11,300 and $10,850 respectively as of September 2008.



Both were at yesterday's hearing, which was attended by about a third the of the 41-member panel. (Bloomberg)


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