Lehman's Fuld Says `Worst Is Behind Us' in Crisis

Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., told shareholders the worst is behind us in the credit-market contraction that has cost the biggest banks and brokerages $245 billion so far.

Fuld, speaking at the annual shareholders meeting of his New York-based firm, said the current environment remains challenging.

The comments echo those of Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., who told shareholders at the firm's annual meeting last week that we're closer to the end than the beginning of the crisis. John Mack, Morgan Stanley's CEO, said last week that the credit-market contraction will probably last a couple of quarters longer.

Lehman's chief financial officer, Erin Callan, said in an interview on April 11 that the firm had faced a very, very tough month, in March. I don't see what the real catalyst for change would be over the next several months, she said. We've got to look out to 2009 for where we're going to change.

Lehman, the fourth-largest U.S. securities firm, said on April 9 it had to bail out five short-term debt funds last quarter that were crippled by frozen credit markets. The firm took $1.8 billion of assets from the funds onto its books at the time, and recorded a $300 million loss. Earlier this month Lehman raised $4 billion from a stock sale, seeking to quell concern the firm was low on capital.

Sending a Message

Fuld said at the meeting that the sale was intended to strengthen capital and send a message to investors. He said the firm will continue to reduce leverage by selling assets, and can counter market rumors with good performance.

March was difficult because the collapse of Bear Stearns Cos. in the middle of the month created a sense of fear and paralysis about the securities industry, Callan said.

Derivatives used to hedge cash securities also diverged widely from their usual levels, she said. Investors were using indexes of credit-default swaps, which typically rise when perceptions of company creditworthiness worsen, to hedge against losses on everything from stocks to collateralized debt obligations. The indexes started to drop in mid-March at a faster rate than underlying securities improved, leaving investors with losses.

The world's biggest banks have recorded $245 billion in asset writedowns and credit losses since the beginning of 2007. Lehman avoided the much bigger losses reported by rivals such as Merrill Lynch & Co., which posted $25.1 billion of writedowns in the second half of last year.

Lehman, down 40 percent this year on the New York Stock Exchange, declined 9 cents to $39.29 at 11:58 a.m.