Fuld's Miscalculation: Were Berkshire’s Infusion Terms “Too Much?”

Below are some of the juiciest nuggets from Monday’s New York Times article, The Last Days of Lehman Brothers:

Days before second-quarter earnings, Mr. Fuld called on the billionaire investor Warren E. Buffett, who would eventually purchase a stake in Goldman Sachs, but Mr. Buffett was demanding terms that Lehman considered too onerous. [Emph. added]

I bet he’d love a do-over. Looking back on Fuld’s disastrous capital-raising world tour last month, one gets the distinct sense he didn’t close a deal with the Koreans, the Chinese, General Electric (GE), A.I.G. (AIG), Berkshire Hathaway (BRK.A), or anyone else because, even at the eleventh hour, he stayed way too persnickety on price. Buffett’s terms for Lehman (LEHMQ.PK) couldn’t have been too different from what he extracted from Goldman (GS) and G.E.: a 10% preferred, callable either right away or within a reasonable amount of time, and warrants with low exercise price.

The deal was expensive, but is hardly the biggest stickup in Wall Street history. In return, Lehman would have gotten the Buffett imprimatur that would have gone a long way in restoring confidence in the firm. Of course, in retrospect, it’s easy to make the call. Still, Fuld’s reaction to the crisis sure seems like miscalculation on a grand scale.

P.S. I’ve read Fuld’s prepared statement to Congress. It’s not a bad effort, but he spends too much time complaining about naked shorting.

Comments

[helplessobs...:]

On TV Fuld looks more like a mafia enforcer than a top level investment bank CEO. Despite monstrous troubles he failed to cut his losses and get capital regardless of the cost.

2008 Oct 07 11:32 AM

[Konst:]

What is the basis for your speculation that Buffett extended an offer for Lehman Brothers? I have not heard anything about this. It is very possible that Fuld reached out to him, and Buffett was not interested. Remember, he likes Goldman Sachs in particular having done business with the firm for an long period of time and praising it numerous times prior to the purchase.

2008 Oct 12 09:12 PM