Dick Fuld, Lehman Brothers’ chief executive, took personal responsibility on Monday for the investment bank’s embarrassing $2.8bn second-quarter loss, the first in its 14-year history as a public company, and said he remained confident in its future prospects as an independent entity.
“This is my responsibility,” Mr Fuld said during a rare appearance on a conference call to discuss quarterly earnings. “We made active decisions to deploy our capital, some of which in hindsight were poor choices because we really didn’t act quickly enough to the eroding environment.”
Mr Fuld also rejected arguments that Lehman’s earnings power had been permanently eroded by the evaporation of significant fixed-income revenues, especially in mortgage-related products, and by the bank’s decision to reduce dramatically its reliance on borrowed money to boost profits.
“Our core business and our strategy are sound,” Mr Fuld said. He added that Lehman had made enough inroads in equities, merger advisory, asset management and other areas, as well as broadened its reach in Asia and Europe, to make up for much of the fixed-income declines.
Shares in Lehman Brothers rose 4.15 per cent in midday trade to $26.88 as the bank formally disclosed a second-quarter loss that was in line with the preliminary figures released last week. Lehman also provided more disclosure on its current mortgage-related holdings and its efforts to reduce risk by selling assets.
The $2.8bn loss led to the removal late last week of Joe Gregory, Lehman’s president, and Erin Callan, chief financial officer. Monday was the first earnings call for Ian Lowitt, the new chief financial officer who previously served as co-chief administrative officer.
Critics argue that Lehman will have to take further asset writedowns and could face funding problems if the US Federal Reserve takes away the emergency borrowing window for investment banks that it opened in March in the wake of the collapse of Bear Stearns.
These people say Lehman will have to be sold to a larger US or foreign bank once its current situation is stabilised.
Lehman argues that it does not need the Fed window and that the marketplace now views it as having ample capital.
While executives at the bank acknowledge that its funding costs could go up if the Fed window is removed they remain confident that no lenders would walk away.
In its disclosures on Monday, Lehman said it had reduced its residential mortgage portfolio by 31 per cent since the first quarter to $14.3bn.
Of that figure, $10.2bn is mainly Alt-A, or near prime, and $2.8bn is subprime or second lien loans.
The bank said it had reduced commercial mortgage exposure by 19 per cent to $39.8bn.