Lehman Posts $2.8 Billion Loss

By SUSANNE CRAIG
June 17, 2008; Page C1

For weeks, frustrated investors of Lehman Brothers Holdings Inc. have been asking for Chief Executive Officer Richard S. Fuld Jr. to answer questions about the Wall Street firm's dismal performance lately.

On Monday, they got what they wanted as the publicity-averse Mr. Fuld led off Lehman's fiscal-second-quarter conference call, speaking for about 10 minutes. Lehman's net loss of $2.8 billion, or $5.14 a share, in line with its projection a week ago, is "totally unacceptable," he said.

The message from Mr. Fuld was clear: "This is my responsibility," he told analysts. "We've made a number of changes. It's now my job to make sure we execute them."

Despite investor concerns that Lehman is too small to survive, since it is the smallest of Wall Street's four major firms, Mr. Fuld insisted that Lehman still can "go it alone" without teaming up with a big bank.

Mr. Fuld and the firm he has led as CEO since 1993 had a lot riding on Monday's earnings announcement and conference call with analysts and investors. From the start of this year through Friday, Lehman's shares have fallen 61% amid concerns about the firm's financial outlook and candor about what is lurking on its books.

The problems culminated in last week's replacement of Joseph M. Gregory, a lifelong friend of Mr. Fuld, as his No. 2 and demotion of Erin Callan, Lehman's finance chief and the highest-ranking woman on Wall Street.

Ian Lowitt, who succeeded Ms. Callan as finance chief and had just a few days to get ready for his debut as Lehman's numbers guy, got off to a rocky start because his microphone was turned off. After that, he answered questions for over an hour.

Investors seemed generally pleased with the performance of Mr. Fuld, Mr. Lowitt and Bart McDade, Lehman's new president and chief operating officer. The firm's shares rose 3.5% during the conference call, which lasted about one hour and 45 minutes. In New York Stock Exchange 4 p.m. composite trading, Lehman was up 5.4%, or $1.39, at $27.20.

"It's hard to believe there are any questions left," said Bank of America analyst Michael Hecht. Mr. Fuld replied: "That's the way we feel."

Yet analysts and investors still are wondering if the future will bring even more painful write-downs for Lehman, despite Mr. Fuld's assurance that the firm's positions are "marked appropriately."

Several skeptical analysts also wondered how Lehman can pull off a promised return on equity in the midteens, vastly better than its 9% in the fiscal first quarter. ROE is a key barometer of profitability. Lehman said the midteens target is achievable because of growth in businesses such as investment banking and asset management.

Mr. Fuld has worked at Lehman since 1967 and is the personification of the firm. But time isn't on his side if he can't find a way to pull Lehman out of its funk. "This firm is known for its operating excellence," Mr. Fuld said. "Bart and I will restore that reputation."

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