Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Employee Losses in Lehman Brothers Stock Holdings

My original Wall Street firm, Lehman Brothers, is in the process of melting down. Since the start of September 2008, the common stock has lost something close to 70% of its value. On the seventh anniversary of 9/11, the common stock closed at $4.22 per share. It appears highly likely that this investment bank's days as an independent are over, perhaps as early as this coming weekend.

The Lehman culture strongly preached the concept of team. Its employees were repeatedly encouraged to stay invested in the firm when a significant portion of their compensation was paid in the form of restricted common stock. In the time since its spin-off from American Express back in 1994, the employee's percentage of ownership apparently grew to be as large as thirty or percent or so. That percentage was diluted some by the additional equity capital raised earlier this year.

On Friday September 12th 2008, The Wall Street Journal wrote about how the decline in the stock price is effecting that ownership stake. The article is entitled The Lehman Stock Slide Hits Home: Employees Face $10 Billion in Losses and written by Randall Smith, Susanne Craig and Annelena Lobb.

All employees holding the stock have taken massive personal losses since the beginning of the year. The CEO and Chairman Dick Fuld, for instance, owns approximately 10.1 million shares and that stake is now valued at $45.8 million, down some $649.2 million or about 93% since the end of January 2008. The other four senior executives listed in statements filed with the SEC owned 2.6 million shares and suffered comparable paper losses.

If I recollect correctly, former Lehman Brothers President Joe Gregory had the second largest holdings among employees. It is not at all clear whether he has sold some of his holdings since his resignation in mid-June. In all likelihood, he is in possession of material non-public information that would prevent him from doing so. This WSJ article further states:

Former Lehman President Joe Gregory used to travel to work in a helicopter. He recently put his 9,500-square-foot Bridgehampton, N.Y., home, which features a 50-foot pool and 200 feet of oceanfront property, on the market for $32.5 million. A person close to Mr. Gregory said he is selling it because he rarely uses the place and he isn't facing a cash crunch.

Each era has its own symbols of excess and hubris. No doubt the example of the Lehman President flying back and forth from Long Island to Manhattan each day in a helicopter will be one such symbol. Who commutes in and out of Manhattan on a helicopter and at what expense?

Wasn't Joe Gregory that same person who came out of the commercial paper trading area and once ran the Lehman Brothers mortgage department? Who was keeping an eye on just how risk was being taken in the mortgage department through securitizations and commercial real-estate? Perhaps Mr. Gregory was blinded by how much money the department was making? Certainly at one point he had some money for such excessive transportation.