On November 20, 2006, Lehman announced its Neuberger Berman subsidiary would acquire H.A. Schupf & Co., a money-management firm targeted at wealthy individuals. Its $2.5 billion of assets would join Neuberger’s $50 billion in high-net-worth client assets under management.
An article in the The Wall Street Journal on September 15, 2008, announcing that Lehman Brothers Holdings filed for Chapter 11 bankruptcy protection, quoted Lehman officials regarding Neuberger Berman: “Neuberger Berman LLC and Lehman Brothers Asset Management will continue to conduct business as usual and will not be subject to the bankruptcy case of the parent company, and its portfolio management, research and operating functions remain intact. In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and aren’t subject to the claims of Lehman Brothers Holdings’ creditors, Lehman said.“
Just before the collapse of Lehman Brothers, executives at Neuberger Berman sent e-mail memos suggesting, among other things, that the Lehman Brothers’ top people forgo multi-million dollar bonuses to “send a strong message to both employees and investors that management is not shirking accountability for recent performance.”
Lehman Brothers Investment Management Director George Herbert Walker IV, second cousin to U. S. President George Walker Bush, dismissed the proposal, going so far as to actually apologize to other members of the Lehman Brothers executive committee for the idea of bonus reduction having been suggested. He wrote, “Sorry team. I am not sure what’s in the water at Neuberger Berman. I’m embarrassed and I apologize.”
Controversy of executive pay during crisis
Richard Fuld, head of Lehman Brothers faced angry questioning from the committee’s members. Henry Waxman, a Democrat, asked: “Your company is now bankrupt, our economy is in crisis, but you get to keep $480 million (£276 million). I have a very basic question for you, is this fair?” Mr Fuld said that he had in fact taken about $300 million (£173 million) in pay and bonuses over the past eight years. Despite Mr Fuld’s defense on his high pay, Lehman Brothers executive pay was reported to have increased significantly before filing for bankruptcy. On October 17, 2008, CNBC reported that several Lehman executives, including Richard Fuld, have been subpoenaed in a case relating to securities fraud.
Goldman Sachs and Lehman Brothers face downgrading
Profits at Goldman Sachs and Lehman Brothers could deteriorate significantly this year if the turmoil sweeping the capital markets persists, a leading research agency said yesterday.
Standard & Poor’s (S&P) gave warning that it might cut the credit ratings on both investment banks, lowering the outlook on Goldman and Lehman from “stable” to “negative”. That comment, which coincided with reports of looming job losses at Goldman, could result in higher borrowing costs and a fall in the banks’ shares.
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S&P said that it expected independent securities firms, such as Goldman and Lehman, to report profit declines of between 20 per cent and 30 per cent for the year. “Nonetheless, we see some possibility, were there to be persisting capital markets turmoil and sharply weakening economic conditions, that financial performance could deteriorate significantly more than we now assume, which would call the current ratings into question,” the S&P report read.
Goldman Sachs has a rating of AA- on its long-term senior debt, the fourth-highest level, and Lehman is one notch below, at A+. The S&P report comes in a week in which Goldman and Lehman reported significant first-quarter profit declines that, nonetheless, were considerably ahead of consensus analyst forecasts.
This week Goldman reported a 53 per cent decline in first-quarter profits to $1.51 billion (£762 million), as the group announced about $2.5billion of writedowns relating to so-called leveraged loans that finance private equity deals, mortgages and direct investments. Meanwhile, Lehman recorded a 57 per cent decline, to $489 million, after taking a $2 billion hit from the credit crunch.
S&P’s potential ratings downgrade emerged only hours after reports that Goldman Sachs would impose significant job cuts in its investment banking, debt and equity underwriting and merger advisory units. It is understood that Goldman, which employs about 32,000 worldwide and typically cuts the bottom 5 per cent of its workforce annually, will eliminate additional jobs in its worst-performing departments this year. However, David Viniar, the chief financial officer, said that the group’s headcount for the year would grow slightly, and it is understood that this is still the plan, even with the extra job cuts. Goldman declined to comment on the possible additional redundancies.
The cuts would follow the elimination of a further 1,800 jobs at Citigroup worldwide, which is expected to result in hundreds of positions disappearing in the City. The cuts, which will affect investment banking and trading as well as hedge fund and private equity services, come on top of about 21,200 redundancies in the past year.
Wall Street and the City face huge redundancies as the credit crunch continues to spread. This week the Centre for Economic Business Research increased its estimate for the number of job losses in the City this year from 6,500 three months ago to 10,000.