Lehman Brothers said last night it has demoted its chief financial officer and chief operating officer, days after the investment bank said it expected its first-ever loss as a public company and following a 65 per cent slide in its shares this year.
The replacement of Erin Callan as CFO, after only six months in the post, and Joseph Gregory as COO, triggered further speculation about whether Lehman can continue to exist as an independent entity given the size of recent write-downs and pressure on investment banks to reduce risk.
The shakeup at Wall Street's smallest surviving major investment bank also raised questions about whether chief executive Richard Fuld could survive investors' dismay over a wider-than-expected quarterly loss and accompanying news of a move to raise $6 billion.
"I think there's just a fear that the problems at Lehman are deeper than what Fuld thought," said Matt Kaufler, portfolio manager and equity analyst at Clover Capital Management in Rochester, New York.
"What does this say about his oversight? He's taking a hit to his credibility, and it all rolls up to him."
Still, Kaufler pointed out that unlike Bear Stearns when it was under pressure, Lehman is able to borrow at the US Federal Reserve's discount window.
Lehman Chief Executive Richard Fuld said in a statement that replacing Gregory, who has been at the company for three decades, was "one of the most difficult decisions" he had had to make.
The fourth-largest US investment bank said that co-Chief Administrative Officer Ian Lowitt (44) will be the new CFO and Herbert (Bart) McDade (48) global head of equities, will be chief operating officer and president.
"Wall Street moves very quickly and certainly the shareholders were very, very disappointed with the events at Lehman," said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York.
"I think there was a need to change some of the management responsible for some of the shareholder unhappiness."