Lessons from Lehman: It's All about Confidence
by AccountingWEB on
By Alexandra DeFelice
A large bronze statue of a farmer and blacksmith shaking hands resided in the lobby of the old Moody's headquarters building. Beneath it read, "Credit: Man's Confidence in Man."
The entire financial crisis of 2008 was about credit and confidence, and the same holds true today. That was the message delivered by the former general counsel of Lehman Brothers, Kevin Genirs, during his keynote address February 1, 2012, at the LegalTech® conference in New York City.
Genirs, who is currently managing director at Barclays Capital, had worked for Lehman for sixteen years before the firm's 2008 collapse.
While his speech recounted the history of the weeks and months leading to the ultimate selling of Lehman to Barclays – saving Genirs and 9,000 of his colleagues their jobs – this more human element of confidence was where he placed the most emphasis.
"The real threat to sustained recovery is the innate human propensity to swing between euphoria and fear."
- Alan Greenspan
- Alan Greenspan
"Since 2008, a lot has changed and yet a lot hasn't," Genirs noted. "Mark Twain says, 'History never repeats itself, but it does rhyme.' It's important to look at history's rhymes and learn from lessons in 2008."
Did people at Lehman Brothers refuse to listen?
"Some thought no one will knock out Lehman Brothers, but many folks were trying to raise issues and right the ship. A number of people were saying, 'We have to fix this,'" Genirs recalled. "Not enough people were listening, or, more accurately, not listening fast enough. Ultimately, we just ran out of time."
In the summer of 2008, Lehman had four strategic hopes: raise more capital; sell the asset management piece of the business (Neuberger Berman); talk to strategic investors, including Warren Buffett; and spin off its commercial real estate portfolio.
Any of these things could have helped, Genirs acknowledged, but "things were happening so fast, we couldn't get it done."
No one slept that weekend in September before the firm filed for bankruptcy on Monday, September 15, 2008.
All eyes were on Lehman, and meetings and hearings were taking place literally around the clock to try to save the firm.
Sunday night about 5:00 p.m., Genirs remembers being crammed into the office of the chairman and learning Lehman would have to file for bankruptcy.
"Employees started showing up in cabs with knapsacks to pick up their stuff. They weren't sure if the offices would be open tomorrow, would I have access to my computer? Will I have a job? No one knew the answers," Genirs said.
At 3:00 a.m., he asked corporate communications to send a blast e-mail to all employees letting them know two things: You will be able to get into the office tomorrow and your computer will work.
"The next morning, I remember passing my twin daughters' room – they were only two at the time – thinking [there would be] no jobs, no health benefits, all just wiped out. After sixteen years, I had nothing. I just broke down," Genirs said. "I took a shower and thought I had to go to the office because I told my colleagues not to worry, deals get done all the time. Lehman Brothers was the melting ice cube. All our best traders were getting solicited, and our goal was to keep the team together for the next few days."
Fortunately for Genirs and his 9,000 colleagues, deals did get done at the last minute, and they didn't lose their jobs.
But of all the lessons gleaned from this experience, the most human element to remember is the emotional nature of the markets.
Genirs left the audience with words of wisdom from Alan Greenspan: "The real threat to sustained recovery is the innate human propensity to swing between euphoria and fear."
"Credit, fear, and confidence," Genirs said. "It's the biggest rhyme there is."
- Ernst & Young Defends Its Lehman Work in Letter to Clients
- Lehman, AIG: Protections for Investors Are Limited in Financial Storm
Alexandra DeFelice is senior manager of communication and program development for Moore Stephens North America, a regional member of Moore Stephens International, a network of more than 360 accounting and consulting firms with nearly 650 offices in almost 100 countries. She can be reached at email@example.com.
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