2023-09-15 05:30:13
A junior analyst from Lehman, a Fed official at the time and a lawyer talk about those days of September 2008 during which global finance almost collapsed.
The American investment bank Lehman Brothers disappeared almost overnight in September 2008: surprise for a novice analyst, fear of contagion for a Fed chief, confirmation for a whistleblower. Here are their testimonies to AFP.
Paolo Battaglia, the novice analyst
After an internship in the summer of 2007 and training at Lehman Brothers, the young “excited” Italian joined the private equity subsidiary in London in July 2008.
“I was starting a new adventure, it was my first job,” he remembers. Lehman was “very prestigious and rewarding to work there.”
“I was aware that the period was not easy for the sector and for Lehman in particular but, until the very last day, no one expected that “Chapter 11” (the bankruptcy law) is a realistic outcome,” he notes.
Once it became clear that the investment bank could not survive alone, “we thought it would be bought by a big bank like Bank of America or Barclays.”
But on the morning of Monday September 15, 2008, in the lobby of Lehman, employees of PWC – bankruptcy administrator – “distributed prospectuses prohibiting us from carrying out transactions”.
“I thought that the bankruptcy procedure was going to take time, that we would continue to work for a while. It was a surprise that everything stopped so abruptly,” adds Paolo Battaglia.
He considers himself “lucky because private equity is management on behalf of third parties, so we continued and I was protected from layoffs.”
He worked until mid-2010 for a Lehman investment fund bought by senior executives. And he left for Goldman Sachs, where he still is.
In hindsight, should he have acted differently? “I did the best I could in a very sad situation. The options were very limited anyway,” he explains.
No leader has been prosecuted. “We tend to associate bankruptcy with crime but it’s just a company that went bankrupt, like many others,” he comments.
The banking crisis of spring 2023, with the bankruptcy of several regional banks and the rescue of Credit Suisse, “was completely different”.
In addition, the “tools and knowledge of regulators and markets are much superior to manage this type of situation,” he believes.
William Dudley, the worried regulator
During the last weekend of the existence of Lehman Brothers, William Dudley changed nothing in his program: a conference at Princeton University then the wedding of a friend, surrounded by finance people. In such a context, “you can’t cancel anything otherwise people become even more nervous.”
“It was very strange to act as if nothing had happened,” recalls the man who was vice-president of the New York branch of the American Central Bank (Fed), in charge of markets, and who took the reins in January 2009.
Yet that morning, at dawn at the office, the mission was to find a plan B to save Lehman.
“In reality, the story began much, much earlier for me because Dick Fuld (boss of Lehman from 1994 to 2008, editor’s note) sat on the board of directors” of the New York Fed.
“I had a lot of interactions with him. I was concerned about his denials regarding the risks weighing on the economy, on the financial system and on Lehman in particular,” says William Dudley.
“So much so that I sent a memo in the summer of 2008 to the board of governors (…) suggesting taking the lead with preventive action (…) It was greeted by deafening silence,” specifies -he.
On September 15, Lehman declared bankruptcy.
“Surprisingly, the initial reaction wasn’t that bad,” he said. Then there was the “contagion”, with a “huge mess” caused by those wanting to recover their funds and those seeking to cover their exposures.
Should Lehman have been saved? “Behind Lehman, there were other (groups) in difficulty like AIG,” notes William Dudley.
If he could go back in time, he would advise his alter ego to “insist more” with the governors.
“But I think it was already too late. (…) There were too many companies with too many problems,” he admits.
The crisis of spring 2023 did not awaken any specters: “Everything took place in full view of everyone. We knew exactly why these companies were in difficulty”.
Oliver Budde, the whistleblower lawyer
“On Monday morning, I was in front of the Lehman building when the chaos started and everyone was going out with their things,” remembers Oliver Budde, referring to the “sadness” and the “shock”.
At the beginning of the afternoon, “I saw the boss of Lehman come out through a side door and leave in his black Mercedes limousine with driver. I took a photo, it gives me a memory.”
He spent the evening “compassing” with former colleagues. Because he had been on sabbatical in Vermont since his resignation in February 2006.
“I had seen a lot of things proving that we could not have confidence in these men (…) The bankruptcy of Lehman legitimized me in a sense”, adds the former vice-president and deputy head of the service legal counsel of Lehman Brothers.
He accuses the leaders of having maneuvered to secretly collect as much money as possible. A change in regulations in 2008 did nothing. “They covered up even more,” notes Oliver Budde. “It was scandalous. That’s when I became a whistleblower.”
Between April and September, he sent five emails to the American authorities – copying Lehman’s board of directors and legal department – but “no one ever contacted me”. “I’m pretty proud of my actions. I did the right thing,” he said.
If he could talk to the man he was in 2008, he would advise himself to “be less naive” about the authorities. According to him, the bank could have been saved with a takeover by Barclays but “it is much cheaper” after a bankruptcy.
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