Lehmans paid execs millions days before bankruptcy

The chief executive of the giant investment bank whose collapse set off a panic which led to the US economic rescue package took home more than €222m since 2000, he told the US Congress.

Richard S Fuld Jr, chief executive officer of Lehman Brothers, ignored a warning that the bank’s “liquidity can disappear quite fast” and dismissed suggestions that staff may not get their bonuses.

Days from becoming the largest bankruptcy in US history, Lehman Brothers steered millions to departing executives even while pleading for a federal rescue, Congress heard.

The US government let Lehman go under on September 15, only to bail out insurance giant AIG the next day, in a cascading series of financial shocks and failures that put Washington on track for the multibillion-dollar rescue starting the end of that week.

President George Bush and US Treasury Secretary Hank Paulson set about convincing US political leaders that the rescue package, which commits up to $700bn (€516bn) of taxpayers’ money, was necessary.

The revelations about the payments to the bank’s executives came in the first hearing into what caused the US financial markets to collapse last month, which opened with finger-pointing and glimpses into internal company documents from Lehman’s chaotic final hours.

Asked if it was true he took home some $480m (€354m) in compensation since 2000, Mr Fuld took off his glasses, held them, and looked uncomfortable.

He said his compensation was not quite that much.

“We had a compensation committee that spent a tremendous amount of time making sure that the interests of the executives and the employees were aligned with shareholders,” he said.

Mr Fuld added that he took home more than $300m (€221m) in those years – some $60m (€44m) in cash compensation.

But he told the Oversight and Government Reform Committee of the US House of Representatives, the lower house of the US Congress: “I take full responsibility for the decisions that I made and for the actions that I took.”

He defended his actions as “prudent and appropriate” based on information he had at the time and added: “I feel horrible about what happened.”

Mr Fuld also said that the company did everything it could to limit its risks and save itself.

“In the end, despite all our efforts, we were overwhelmed, others were overwhelmed, and still other institutions would have been overwhelmed had the government not stepped in to save them,” he said.

But Democrat Henry Waxman, the committee’s chairman, said Lehman Brothers was “a company in which there was no accountability for failure”.

Mr Waxman read excerpts from Lehman documents in which a recommendation that top management should forgo bonuses was apparently brushed aside.

Executives who feared for their bonuses in the company’s last months were told not to worry, according to documents cited at the congressional hearing.

One executive said he was embarrassed when employees suggested that Lehman executives forgo bonuses, and said: “I’m not sure what’s in the water.”

Mr Waxman said: “Even as Mr Fuld was pleading with Secretary Paulson for a federal rescue, Lehman continued to squander millions on executive compensation.”

He added that Mr Fuld and his board were warned in January that the company’s “liquidity can disappear quite fast”.

Despite that warning, he said: “Mr Fuld depleted Lehman’s capital reserves by over $10bn (€7.4bn) through year-end bonuses, stock buybacks, and dividend payments.”

Waxman quoted Mr Fuld as saying in one document, “Don’t worry” to the suggestion that executives go without bonuses.

That suggestion came from Lehman’s money management subsidiary, Neuberger Berman.

Mr Waxman quoted George H Walker, Mr Bush’s cousin and a Lehman executive who oversaw some Neuberger Berman employees, as responding with a dismissive tone to the idea of going without bonuses.

“Sorry team,” he wrote to the executive committee, according to Mr Waxman. “I’m not sure what’s in the water at 605 Third Avenue today... I’m embarrassed and I apologise.”

Democrat Elijah Cummings said: “I wonder how he sleeps at night.”

Mr Waxman described the rescue package as a life-support measure.

“It may keep our economy from collapsing but it won’t make it healthy again,” Mr Waxman said.

Yesterday, more than €120bn was wiped from the value of the UK’s biggest companies as London’s FTSE 100 suffered its biggest fall since Black Monday.

And in the US, the Dow Jones plunged as much as 800 points – its largest one-day point drop – before recovering to close with a loss of 370. It finished below 10,000 for the first time in four years.

The rescue plan, now law, was so rushed that the usual congressional scrutiny is only coming now, after the fact.

Tom Davis, the committee’s senior Republican, said: “Although it comes too late to help Lehman Brothers, the so-called bailout programme will have to make wrenching choices, picking winners and losers from a shattered and fragile economic landscape.”