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The Wall Street Journal – Lehman Shuffles 2 Key Jobs In Bid to Restore Confidence
Finance Chief Is Demoted; ‘Wall Street Wants a Head’
One of the firm’s biggest critics is David Einhorn, the manager of hedge fund Greenlight Capital, who has mounted an increasingly public campaign against Lehman. He has been shorting Lehman’s shares, or trying to make money from the stock’s fall. In May, Mr. Einhorn approached Ms. Callan with some questions. Typically, big firms would ignore traders like Mr. Einhorn. But Ms. Callan, after consulting with her bosses, agreed to a phone call with him, according to a person familiar with the matter. It didn’t go well. During a call that lasted about an hour, he peppered her with questions, concerned about discrepancies between what the firm had said in its March fiscal first-quarter conference call, and what it released in a regulatory filing a few weeks later. Among his concerns: He said Lehman hadn’t sufficiently written down or provided enough detail on $6.5 billion of complex debt securities it held. Lehman denies the allegation. Afterward, in an email exchange, Mr. Einhorn told Ms. Callan he had decided to use what he had learned during their call as the basis for a speech on Lehman. Ms. Callan responded, calling Mr. Einhorn disingenuous. “I can only feel that you set me up and you will now cherry pick what you like out of the conversation to suit your thesis,” she said. Mr. Einhorn wrote back: “I completely reject the notion that I have been disingenuous with you in any way. Actually, I have been just the opposite,” he said, noting his views on Lehman are widely known. “You had no reason to expect that our discussion was confidential in any way.” The spat with Mr. Einhorn eventually played out in newspapers and on television. Lehman investors and insiders say the feud hurt Ms. Callan and the firm, because it suggested Lehman was losing focus on bigger issues.
Comment What is the difference between financial executives that report huge losses and keep their job and financial executives that report huge losses and lose their job? It boils down to dilution.
Losses can be spun as temporary. So while no one likes to see losses, the hope is they are over and maybe the securities/loans written down will rebound once the credit crisis has passed.
Dilution, on the other hand, is permanent. EPS and ownership are forever reduced and that is intolerable, so heads must roll.
What was the straw that broke Erin Callan’s CFO career? It was all about Monday’s 30% dilution of shareholders.