I also left just before the end, and was really lucky.
But Lehmans has a special place in my heart, it is a organisation that I measure all against and most fall short.
I was at Lehman Brothers (AKA "Lehman's", or "The Brothers", spoken in a slightly menacing US-Italian accent) from January 1996 to June 2008, bar a three year gap in the middle for dotcom japes. I was an IT contractor/consultant with several groups in the Fixed Income division, including Credit, which dealt with the infamous …
So why did Lehman's not survive September 2008? Partially bad luck, with possibly an element of LB being picked to be the fall guy
From what I can tell, most people fairly high up didn't see the trouble coming
After Bear Stearns imploded in March
Think the last one explains the other two ... Bears Stearns was not allowed to collapse like Lehman's did so it sent a message to the banks that they wouldn't be allowed to collapse so no need to worry unduly. Then authorities realized how this message had got across and decided that an example needed to be given and Lehman's were in the wrong place at the wrong time. Of course, that they had the opposite effect of total panic which meant the authorities had to go back to the "this can't happen again mode" with the hope that people would also think "... but then again, they did let Lehman's go".
How about you feed the article to some kind of text to speech program and see how it sounds. Human's seem pretty good at visual error correction but aural glitches seem to stand out more.
Shorting the stock of the company you're contracted to. Have to remember that one.
The Lehman (highly expensive) low-latency trading platfrom which ended up at Nomura has now been passed on to subsiduary Instinet. So a large chunk of the same people are getting a 3rd bite of the cherry to try and get things right.
On a personal note having been through several year's worth of purges while Instinet dragged its way to balancing the books we've now had a complete platform (and associated staff, costs and politics) dumped on us. The up side for me is that I get to play with some new kit and expand my skillset. But integrating the platform is a nightmare and we're effectively facing a reverse takeover.
Any bank that screws around should fail as a result without any recourse to tax payer funded bailouts etc, just FAIL. But, first we need to do two things; 1) Completely separate retail banking from investment banking and, 2) Dramatically increase the number of retail banks. Since deregulation UK banking has condensed itself into a hand full of mega-banks (not good for Mr & Mrs Smith, but dandy for high-flying greedy gits with an uncontrollable urge to gamble with big bucks). Granted the financial sector of the UK generates significant income, but these banking giants are not what said Mr & Mrs Smith need or want. Bring back many, many, more mutual and smaller retail banks - who take smaller and more calculated risks on local businesses and enterprise. Yes, these have to be allowed to fail as well if they mess up. The more banks you have in the sector the smaller the hole they punch when one does fail. Bring back local banking for local people, where you get to meet and know the manager, or at least the deputy-manager and staff, of your local branch. I am conscious that I sound like a ranting old git sometimes, because I am just that - but in my day you had to put on a suit and talk, face-to-face, with bank staff, not phone an 0800 number and wait while some spotty youth clicked some buttons. You took away a sense of the responsibility of the financial agreement you had just signed up to from such meetings as well. Money has just got too free and easy these days that's the root of it all.
All in all I wouldn't mind large brokerage bonuses so much if what I have just outlined above meant that investment bankers had to work a bit harder for it. Fair play and just rewards to the IT staff who back them up too, but please, keep your big bucks deals out of the way of my little piggy bank.
IF $rant over goto $have a lie down.
There needs to be better protection for retail banking from their merchant arms but it's not as simple as that.
Presumably you want your savings to pay interest, so you need your retail bank to invest the money - just buying US government securities isn't going to pay for all those branches and pens on chains.
In the days when you had to talk to a bank manager somebody had to pay for that, either you paid bank charges or the bank only allowed accounts from people with plenty of money and paid pathetic interest. We don't go back to women not being allowed accounts without their husband but we do go to women only being allowed an account if they have a BMW
Lehmans keeled over quite simply cos of the two scottish twerps and the dangerous driver; aka Alastair 'Captain' Darling' the then prime minister Gordon Brown and a guy you've probably never heard of called Hector Sants - and I hope for his sake the police don't read Too Big to Fail..
Bob Diamond & Barclays had agreed with the fed and Lehmans to take them over as a RUNNING CONCERN, the three gormless idiots at the very last second blocked it for fear of the UK system being 'contaminated'. By all accounts, Bob went (understandably) nuts, the Fed ended up effectively forcing Lehmans to chapter 11 and the International banking scene ended up looking like a Cross between Omaha Beach and the Battle of Stalingrad...
Well done, Darling, well done...
For the long version; Andrew Ross Sorkin, Too Big to Fail.. available from all good bookshops and probably Apple too..
I think thats a bit unfair - I dont think anyone is actually arguing that Lehmans was a going concern at the time it failed, if it was it wouldnt have failed!
If you look at the other banking mergers that the UK allowed or forced at the time (RBS - ABN Amro, Lloyds - HBOS) then they have exactly gone swimmingly for the UK Exchequer over the last 5 years. I'll conceed that you could take the view that in the long term the taxpayer may make a profit - but that is certainly not on the cards just now.
Why then, would the UK goverment allow a UK bank to take over a US bank and de-facto assume its unquantified liabilities? (unquantified being a pretty scary word in those times) Moreover, this being a bank that the US goverment was actively refusing to support. From what I understand of the timeline, the US authorities never even thought to ask for UK regulatory approval until a few hours before the deal needed doing.
It probably would have been better if the US had bailed it out along the lines of the UK RBS approach - i.e. massive capital injection that diluted existing shareholders to almost nothing or even the Northern Rock approach where they simply said this bank is dead, all shareholder equity is worthless but we'll keep it running. But then again, moral hazard is a big thing and there is a bit of me thats glad at least one major bank was allowed to fail - the system needs some credible belief that it can happen in order to perform in a sane manner.
For my money Darling / Sants did exactly the right thing here - I dont see how they could have done anything different.
That depends on what exactly you mean by "a going concern". At the time all this was happening I was reading some blog articles from a fellow who was calling these events about two to four weeks before they actually happened based on his readings of the papers and knowledge generally about the sorts of programs used in US trading operations. What brought down Lehman was a cash crunch. Their long term assets were good. Maybe not as profitable as they thought they were going to be, but still profitable over a 3 to 5 year time frame, certainly over a 10 year frame barring of course the collapse of the entire US banking system. But they needed an immediate injection of liquidity in the 30-day time frame with a possible 90-180 day longer term need to get back to a working cash flow.
Yes, there was a risk associated with it. And in bygone days of real capitalism, somebody would have smelled an opportunity and taken it. But in this day of whimpy no-risk investment mania that can't happen.
Bang on. Lehman was a cashflow administration (eg they couldn't get money in the door fast enough to cover the outgoings to clients, which is poison to a big broker dealer like LEH). Unlike, say, RBS, who would have plummeted into administration if the UK govt hadn't stepped in.
Having had experience of working at both banks, I can happily say that Lehman was far, far better run and managed, and their IT was second to none, with a low TCO compared to other investment banks. RBS, by comparison....well you all know the stories, right?
Re: Not quite...
Sorkin's book is good, but it's not right.
The reason Brown refused to take on Lehman's debt was twofold. Firstly, it's not right for a UK govt to take on the debt of a US corporation. Secondly, the US govt refused to do the same. Brown's response to the Fed was "If you're not willing to take on any of the debt, why are you expecting us to do so?". He was right, and Sorkin doesn't call this out due to his own bias.
Barclays also pulled a fast one - they had no intention of buying Lehman as a going concern, otherwise they'd have had to cover off all the CDO and Real Estate debt. That would have been foolish. Instead, they waited until Lehman went under then cherry-picked what they wanted. They couldn't buy the UK sections due to anti-monopoly issues, so Nomura stepped in to take the EU and AS assets.
I was at LB when it crashed on my university industrial placement working in Windows Server and Exchange Admin. The week before it all went tits up I was working on upgrading exchange to 2007. Still, it was one of the most interesting events in my career to date, a big learning experience and a source of experience I still use today.
Thanks, in just a few lines you gave us a better tech insight that this defensive corporate blog :
"LB was one of the best and most meritocratic organisations that I have worked with. Its internal IT and pricing systems were also about the best that I have worked with in finance: I wouldn't trust my deposit account to some of the other rubbish that I have worked with in the City."
He's right. It was.
Everyone I know from Lehman that has moved onto to another big corporate has bemoaned how badly run they are in comparison. There was a real "we're in this together" atmosphere; and whilst there were politics, they were absolutely nothing compared to other firms.
The team I worked on included some of the brightest individuals one is ever likely to meet: Nasa scientists, ex Jet Propulsion Labs engineers and mathematics professors. Then there was the streetwise crowd too- cocky traders with huge self-belief but few qualifications. Both groups had bucket-loads of talent and plenty of charisma. My job was to design real time number crunching spreadsheets and back-end systems to help the team trade their latest ideas and hunches.
While this was an amazing environment to work in, I soon realised that I had landed myself in a workplace that was even more geeky than IT. The traders were completely obsessed with numbers and how they moved and where they were going. If these guys worked in any other area of life, I was convinced that not a single girl would ever talk to them. My immersion in the world of markets brought me back to my early days as an IT student, as I found my brain saturated by endless abbreviations, acronyms and nicknames.
Welcome to the wonderful land of banking, a place overshadowed by mysterious institutions with Pythonesque names such as Fannie-Mae, Freddie Mac, and Ginnie Mae. The magical language of this fantasy kingdom included such spells as Butterflies, Steepners, Flatners, Asset Swap Spreads and Bermudan Swaptions.
Apprentice sorcerers were trained to manifest monetary magic out of thin air. Successful apprentices who became wizards were sure to find their dreams of early retirement come true. These Masters of the Universe were intelligent, but ultimately aggressive trolls who stalked the trading floors, bending numbers and markets to their wills. Many teleported themselves into their own hermetically sealed worlds.
The trading citadel was also filled with goblins and ghouls, but they were mostly assigned to the back office away from the sunlight to carry out the grunt work. I was a troll by the way—at the upper end of things, but still devoid of sunlight. I reported to a warlock called ‘Big Dog’ who was the ‘grand wizard’. It did not take long for the novelty of this highly eclectic working environment to wear off. This was a highly competitive cutthroat world, where nothing, absolutely nothing mattered except the bottom line. One slip or a show of weakness and you’d be cast out of the magic kingdom forever.
Traders are mavericks by nature, wildly independent and frequently rebellious. In many respects, the trading floor is like a street gang. There are no bosses in big offices as such, but there are ‘‘Big Dogs,’’ although they can often be hard to single out. On a typical day the loudest traders are often the weakest earners and the biggest guns are the least visible. You can always tell who the ‘‘Big Dog’’ is during bonus season though, because he is the one sitting in the middle of the desk spinning all the stories. The bigger a year a trader has, the more weight they carry on the desk and the more time they get centre stage.
Who is the biggest Dog of all the Big Dogs? Answer: 99% of the time he is the quietest. That is until the shit hits the fan and then you can hear him howl louder than any of the other Big Dogs put together! My Big Dog was as big as they got and I had the privilege of being in his inner kennel. Whether it was the tabs he picked up in top-steakhouses or tops he took off in cat-houses, his appetite for life was full-on.
I like what you wrote there. It's all testosterone fueled willy waving playground activity through and through. Not a care in the world and not related in any way shape or form the 'real' world. Once the spotty mathematicians from Berkley campus, or where ever, got their 'modern' trading formulas noticed we were all doomed. Banking does not need any of it.
Remember RBS - in days of yore, c.1980, twas a gold-standard, rock solid investment, nothing fast and fancy, just steady as you go, long term growth. Then that sh**head Goodwin and a bunch of hangers-on got involved and trashed the legacy that had taken so many dedicated staff so many years to build.
"I like what you wrote there. It's all testosterone fueled willy waving playground activity through and through. Not a care in the world and not related in any way shape or form the 'real' world. "
Yep, that's about it! What a wonderful world, eh?.........
For instance, insight into the farce over the London computer systems - Nomura acquired them all, only for BarCap to learn too late that they contained critical information and services pertaining to the running of the businesses that BarCap had just acquired. Cue embarrassing exchange where BarCap has to do another deal with Nomura to get hold of the former Lehman kit required to actually run the old Lehman business.
And more honesty relating to the BarCap situation - anyone at BarCap during the integration phase and even now will tell you an awful lot about the ex-Lehman workers that are still there, running their own former Lehman systems often with 2-3 times the headcount of the equivalent BarCap system despite processing significantly less volume than BarCap, refusing to help work on or learn the BarCap systems, all the while protected by ex-Lehman execs.
It's hard to reconcile these workers with the picture of the classy institution the author has attempted to paint.
I was there between 2005 and 2008, and later with Nomura for a few years. I was in a back-office techie role.
The "segregation" effort between BarCap/Lehman/Nomura was an interesting time. When BarCap bought Lehman US they slung up fibre between their NYC offices, and the same thing happened in London with Nomura and Lehman Europe. This meant that we were in the interesting situation that we had connectivity between three different banks' corporate networks for a while. Of course, they installed firewalls on these links but that wasn't always effective. For example, to make any MS Exchange traffic work between companies they had to allow all of it through the firewalls. This led to Nomura employees being able to lookup all BarCap employees in the global address book (and possibly vice versa?) until the Exchange team figured out some filters.
As per AC @ 18.02, Nomura did acquire all London systems from PwC (at least Equities as part of the acquisition, and later FID systems through a purchase). But Nomura lost out on many of the core systems that were predominantly provided by Lehman US (e.g. LehmanLive, which was ultimately adopted by BarCap as their web platform). Ultimately they ended up making exchanges for various systems (there was probably money involved too, I wasn't privy to that). Lots of developers who had worked closely with their counterparts on the other side of the pond ended up doing their own little exchanges too, off the books of course.
As the author says, the Nomura/Lehman "integration" was far from roses. I remember attending an integration dinner (where our respective teams from the two companies were supposed to bond) and only former Lehman staff showed up. Things got better, but slowly, and there were always turf wars.
There's a lot of other interesting technology stories from that time - they always make me smile. Thanks for documenting some of it for future readers!
Indeed. The AD split that had to happen was apparently the largest ever - Microsoft warned against it and said there was no way they'd offer support if it went wrong!
There are lots of tales to tell about the separation and what happened to people, but those are tales for the pub. On September 15th.
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