Lehman Brothers (NYSE: LEH ) took two steps forward yesterday, but I wonder whether it's also taking one step back. On Tuesday, the firm announced four senior-level appointments in the second round of a management shakeup which began with the reassignments of CFO Erin Callan and COO Joseph Gregory. The two most prominent appointments in its latest upheaval: Michael Gelband and Alex Kirk at the head of Capital Markets and Principal Investing, respectively.
Lehman is struggling to restore investor confidence, having botched its handling of mortgage-related losses and the need for outside capital. After JPMorgan Chase (NYSE: JPM ) absorbed Bear Stearns in March, Lehman became the smallest of the four remaining independent global investment banks -- and the one most heavily affected by the mortgage crisis. Morgan Stanley (NYSE: MS ) , Goldman Sachs (NYSE: GS ) , and Merrill Lynch (NYSE: MER ) all have better-diversified franchises. (Citibank (NYSE: C ) , JPMorgan Chase, and Bank of America (NYSE: BAC ) all have investment-banking businesses, but they are universal banks).
New blood or old hands?
Messrs. Gelband and Kirk are Lehman alumni, and can hardly be considered outside hires. In fact, Gelband was working there as recently as 2007. At first glance, they look like exactly the wrong picks in this situation: Gelband was Lehman's global head of Fixed Income from 2005-2007 -- the very area at the heart of the firm's current problems. Meanwhile, Kirk was head of Global Credit Products, with included responsibility for the CDO and Structured Credit activities -- Ground Zero for the credit bubble.
On the bright side, Bloomberg reports that the "management differences" that led to Gelband's departure in 2007 included his opposition to the amount of mortgage-related risk the firm was taking. All the same, I think investors might have preferred to see Lehman get new blood that is untainted by the credit fiasco. If these hires show one thing, it is that Dick Fuld -- the longest-tenured Wall Street CEO -- has ceded real authority to his new COO, Bart McDade, who brought both men back. Assuming McDade is up to the task of pulling Lehman together, now is the right time for Fuld to loosen his iron grip.
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