Fuld felt that Vinci had broken the chain of command and had usurped Pettit’s role by telling Vanderbeek, albeit with the best of intentions.
“I was just doing the right thing, but Dick didn’t like getting yelled at by Pettit, who was just trying to protect the business. That’s why we were all loyal to Pettit. That’s why Vanderbeek didn’t go in to talk to Fuld. He went to talk to Pettit, because he knew Pettit always wanted to do the right thing for the business. Fuld just wanted to do what was politically correct for Peter Cohen and Shearson.
“Now the stupid thing about it then was that when we delevered, it was all window dressing. We just took off the least risky assets, which were the easiest to sell. We would make the books look like they were delevered.”
Once the quarter was over, the loans would go back onto the repo book. It was just like the cards coming on and off the wall at 9 Mill Lane a few years earlier.
LCPI
must have really grated on the management of Amex and Shearson. Despite the open arrogance of Pettit ‘s people, it was impossible to deny their talents.
By 1990, Tucker had risen to the top of all of Shearson Lehman fixed income sales; Lessing was Tucker’s deputy, and Joe Gregory was made head of mortgage-backed securities sales. The Ponderosa Boys and Dick Fuld were the face—and brains—of Shearson Lehman fixed income.
“A group of us had grown up together and worked together a long time,” Lessing said later. “We were strong. We had a certain culture. We kept pushing.”
Lessing’s version of “pushing,” according to someone who worked for him, meant that he spent a lot of his day climbing onto his desk and shouting “Sell!” to whip up enthusiasm. He wasn’t considered the brightest at the firm. “They only put him on the operating committee—a committee formed of around 20 people in senior positions—so that they could talk business in the car,” someone senior to Lessing said. said. But he did have a knack for charming clients.
Fuld was increasingly isolated from the trading floor, even though his office was right next to Pettit ‘s.
One person remembered watching Fuld’s secretary, Marianne Burke, work through a stack of L.L. Bean receipts. Fuld would have an assortment of L.L. Bean polo shirts spread across his desk—two of almost every shade, and whatever he didn’t like he’d have Marianne return. “He orders them in two different sizes and then makes up his mind,” she explained. The story wound its way across the trading floor and through the halls: This was how Fuld frittered away his workday, ordering from the L.L. Bean catalog.
One of the people who made most of the rude jokes about Fuld in those years was Gregory, who was known to be both a hothead and a chatterbox. “When I first met Joe back in 1980,” Lessing would later say, “he was a young ball of energy—clean-shaven, constantly in motion, the fastest man who had ever been on a calculator in the history of mankind. But he had one problem: He looked very young.”
Gregory went to the Virgin Islands in the mid-1980s and came back with a beard. He grew it in hopes of looking older, more commanding, and thereby more appropriate for running the trading desk. Though it didn’t have the desired effect—his colleagues still remembered his baby face—it became a kind of signature. In a world of clean-shaven, immaculately groomed men, Gregory’s beard was a power play, a defiant sign of his confidence.
He was also known for fits of road rage. “There was one time when a cabbie cut us off in Manhattan, just by the South Street Seaport,” Tom Tucker says, “and Joe railed at him from the car. The cabbie pulls over. Joe gets out of the car. The cabbie pulls out a tire iron, and Joe starts to go after him. And we’ re like, ‘Joe, get in the car! You idiot!’ ”
Colleagues wondered if it was tremendous insecurity that made Gregory so susceptible to emotional fits. “We wondered if he could never get over where he had come from and where he got to,” says one. “It was as though he’d moved up so far beyond his dreams, he really had no idea who he actually was.”
One of the many people lashed by Gregory’s temper was bond salesman Craig Schiffer. Schiffer was bright and bold; he had a habit of skipping his boss’s morning meetings, and eventually this irked Gregory so much that in the early 1990s he went to Pettit and demanded that Schiffer be fired. Pettit talked to Schiffer, and then told Gregory they couldn’t let him go. Gregory, according to someone in Schiffer’s department, went berserk. “He screamed at Craig like I’ve never seen. Joe appeared to be furious that he had lost, that he wasn’t able to get rid of Craig. It was unbelievably threatening.”
Fear was very much the management style of that era, and it began with Fuld.
In 1989 Pettit sent Dick Dorfman—who covered the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac—and Steven Carlson, a managing director, to Fuld’s ninth-floor office. They had to explain why Lehman needed to buy mortgage assets from government-owned asset management company Resolution Trust Corporation (
RTC
) stock, which was responsible for liquidating the assets of insolvent savings and loans (S&Ls) in the 1980s crisis. According to someone in the room, Carlson said to Fuld: “We’ve got to get staff on this. We’ve got to get full-time coverage on this. You’ve got to spend some money to make money that is going to become available, in terms of cheap assets to buy.” He felt it would be the buying opportunity of the decade because these assets were going to be dumped on the market and be cheap.
Fuld’s response was typically curt: “How much money do I need to spend?”
“We think it’s three or four million dollars for these kinds of things,” Carlson said.
Fuld rushed to the point: “How much money are we going to get?”
Carlson and Dorfman just looked at each other. “A lot. You know,
lots
, ” which wasn’t specific enough for Fuld, who said again, “How much money are you going to make?”
“Dick, it’s an opportunity—lots.”
Fuld just growled, “Get the fuck out of my office.” And before they could say anything else, he shouted: “Get the fuck out!”
The next day they came back, and Fuld didn’t even look up from his desk. “How much money are we going to make?”
“Fifteen million.”
“Okay,” Fuld said. “Spend the money.”
Fuld was a classic capital markets thinker in that he valued a simple figure over detailed explanations. He wanted things easy. He didn’t want to be bogged down with the minutiae of data reasoning; that was a job for other people, Pettit for instance. Pettit was there to corral the staff, to keep it in line, to do whatever he could to inspire them to do whatever they had to do to get Fuld the number he wanted. Fuld was there for the big decisions. In his mind, this didn’t make him a tyrant; rather, it made him efficient. And while Pettit was his deputy, he didn’t need to evolve because Pettit had his back on the small stuff.
But Fuld also knew that if the grand plans for
LCPI
were to become real, then he’d have to change. He’d have to be a better manager. He’d have to learn to delegate; to be a people person. He couldn’t really be “the gorilla.”
He’ d been given the nickname because of his habit of grunting, his prominent forehead, and his fondness for expletives. To further the myth, he kept a stuffed toy gorilla in his office on top of a basketball hoop, but it was all theater to mask his social anxieties.
He secretly started working on his weaknesses.
He was inarticulate and introverted. He was a solid trader, but knew next to nothing about investment banking, despite having put himself through New York University’s prestigious Stern School of Business at night during his early years at Lehman.
So he began to carefully study the men around him, as he had with Glucksman, who had qualities he admired but had also lacked qualities Fuld lacked.
For example, Fuld was nowhere near as good a negotiator as 64-year-old Ronald L. Gallatin, an intellectually nimble partner who created many of Lehman’s financial products during the years of Slamex. Gallatin was once described as a “man who could juggle so many balls that only he could keep track of them all.” Fuld paid close attention to what made him effective. “Dick listened carefully to everything Gallatin said. In fact, he listened carefully to everything everyone said. He absorbed far more than people realized,” said someone familiar with the situation.
Fuld got a brutally blunt reminder of how much he still had to learn when he was joined at the helm by the man appointed in 1990 to run Shearson Lehman’s investment banking division while Fuld ran fixed income. That man was J. Tomlinson Hill—otherwise known as Tom Hill.
The appointments had come about almost organically. Fuld was the head of the toughest traders in Shearson Lehman while his counterpart in banking, Hill, had shone among all the bankers. Hill was in the mold of the famous Lehman bankers of yore. He was known to be one of the toughest fighters on the Street. Immaculately dressed, his hair slicked back, Hill was the ultimate smooth -talking barracuda as banker.
One former Shearson Lehman executive says: “If Tom Hill were not actually as good a banker as he was, he still would have been hired by Central Casting. He absolutely looked the part. He went to the right schools, had the right physical build—in every way, shape, or form, this was your classic investment banker. He knew everybody from business school, knew everybody from the country club.”
Hill’s sublime arrogance left many people cold, if not mortally wounded. Many sources say he has since matured into one of the most effective and liked investment bankers on Wall Street (an impression confirmed by this author who met with Hill twice). But back then he was young and hard -edged. A mutual friend once sent a young Harvard MBA to be interviewed by Hill, who reportedly told the young man he clearly did not have the “drive and energy” required to be a success in investment banking since he was making only $200,000 a year at his current job.
Hill came by his arrogance honestly. A senior Lehman executive says, “Tom went from being a very, very good cutthroat—because that’s what you’ re supposed to be as a mergers and acquisitions banker—to actually running the investment banking area.” It was Hill who drafted the blueprint with both the Shearson Lehman board and the Amex board that branded the Lehman divisions as “one firm.”
In an effort to show that this realignment was not mere lip service, once Hill and Fuld were appointed co-heads of Lehman in 1990 (Hill was responsible for banking; Fuld for fixed income with Chris Pettit as
COO
), Hill built one office next to Fuld’s on both the trading floor and another on the banking floor. The goal was to cement the idea of Shearson Lehman as one firm, with no more feuds between the bankers and the traders.
And for a while it worked, in part because Dick Fuld needed it to work. He knew he had to learn what Tom Hill knew, how to
be
him, if he was ever to make it to the top echelons of Wall Street.
Over the next two years, according to one insider, Fuld studied Hill so intensely “he should have been given a postgraduate degree in learning how to become Tom Hill. He had studied and studied and studied Tom Hill. If you walked into a meeting in Dick’s office between 8:30 and 10:00 in the morning, Tom would always be sitting there, they would both have their nail clippers out, and they would both be filing and clipping their nails at almost exactly the same time.
“I really believe that if Tom had regular bowel movements at 9:15 in the morning, and that’s what an investment banker’s supposed to have, [Fuld] would have followed him to the men’s room.
“And as bright as Tom is, I don’t really think he believed—understood—that he was really like an animal in the zoo that was being studied. Dick was able to take mannerisms that he saw in Tom; he was able to take the essential personality.”
These were lessons Fuld knew were essential for him to learn if he was one day going to lead an investment bank of his own. And to do that, he’d have to get rid of Shearson and American Express—and Tom Hill and Chris Pettit.
Do you honestly think, given what you know about Dick
Fuld, that he tried to save my job? Of course he didn’t. He
needed me gone.
—J. Tomlinson Hill, Vice Chairman of the Blackstone Group
O
ne of the biggest challenges Dick Fuld, Chris Pettit, and the other senior people at Lehman embraced during their years under Shearson and American Express was not just to protect their bonuses. They were protecting the brand of Lehman so that one day it might stand alone. They didn’t do this just out of idealism—it was the only way they’d get
really
rich.
In an attempt to reshape the merged company and expand his little unit into all of fixed income, Pettit hired John Cecil and a team from McKinsey & Company, the consulting firm. Until 1990, the Lehman retail brokers knew they would always be involved in equity (stock) underwritings, of which they took a percentage for themselves, while the Shearson brokers depended on over-the-counter stocks, municipal bonds, and tax shelters (which paid less commission). There was much less upside in this, so the Shearson brokers never gelled with their Lehman counterparts.
Meanwhile, irking the American Express and Shearson leadership was the fact that the Lehman banking had been weakened when so many of its top bankers left with, or soon after, the merger. This meant that while Goldman Sachs had the topflight clients, Lehman was left with middling seconds.
And although, on the equity side, Lehman was in many deals controlled by Goldman Sachs, Merrill Lynch, or any of the other titans of Wall Street, it was rarely the lead banker in a quality deal. In other words,
IBM
, or any other huge conglomerate with mountains of money to throw around, would not make Lehman the banker of choice if it wanted to do an offering or an acquisition.
Further muddling things was the fact that on May 14, 1987, Shearson Lehman went public; it sold 27 percent of its stock—13 percent had been bought by Japan’s largest insurance company, Nippon Life, and the rest was owned by American Express.