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Lehman's boss under pressure from US Congress

Latest update : 2008-10-07

A Congress committee asked Lehman Brothers CEO Richard Fuld to justify the 500 million dollars he earned as the bank he managed headed for bankruptcy. His hearing is the first in a series that to be held after the approval of the bailout plan.

US lawmakers Monday grilled the head of Lehman Brothers demanding he justify some 500 million dollars he had earned since 2000, as well as huge bonuses sought for top executives even as the bank failed.

Richard Fuld, the chief executive officer of the investment bank which fell prey in September to the credit crunch, was called to account by the House of Representatives oversight committee.

The hearings are the start of a series of probes promised by Congress which on Friday passed an unprecedented 700-billion dollar rescue package to shore up Wall Street, amid the country's worst economic crisis since the Great Depression in the 1930s.

Committee chairman Henry Waxman targeted Fuld, saying over the years he had earned some 500 million dollars in bonuses and wages from Lehman Brothers. Fuld owned a 14 million dollar getaway in Florida, as well as a home in Idaho filled with an art collection, Waxman said.

"You've been able to pocket close to half a million dollars and my question to you is that fair for a CEO of a company that's now bankrupt? It's just unimaginable to so many people," Waxman asked Fuld.

Figures provided by Lehman Brothers showed Fuld received some 52 million dollars from the bank in 2000. By 2006 that had ballooned to more than 106 million dollars.

But Fuld disputed that he had pocketed that much eight years, saying: "I would say to you that that 500 number is not accurate.

"I think for the years you're talking about here I believe my cash compensation was close to 60 million and the amount I took out of the company over and above that was closer to 250 million. Still a large number though."

In a series of written testimonies received over the weekend Fuld "takes no responsibility for the collapse of Lehman," Waxman said.

"Instead, he cites a 'litany of destabilizing factors,' and says that 'in the end, despite all our efforts, we were overwhelmed.'"

Lehman Brothers sought bankruptcy protection on September 15 after a frantic weekend of talks failed to find a buyer for the Wall Street giant ravaged by credit and real estate woes.

The massive bankruptcy filing in US federal court in New York listed 639 billion dollars in assets at 613 billion in debts, and prompted a bloodbath on the global financial markets.

Japan's Nomura Holdings is buying a swathe of Lehman Brothers' operations in Europe, Asia and the Middle East, after British bank Barclays sealed a 1.75-billion-dollar deal to acquire its investment banking and trading units.

"We can't continue to have a system where Wall Street executives privatize the gains and then socialize the losses. Accountability needs to be a two-way street," Waxman said.

And he pointed to an internal Lehman email in which the bank's compensation committee recommended as late as September 11 giving golden handshakes of more than 20 million dollars to be shared between three departing executives.

"In other words, even as Mr. Fuld was pleading with Secretary (Henry) Paulson for a federal rescue, Lehman continued to squander millions on executive compensation," Waxman told the committee.

"Many experts think Lehman's fall triggered the credit freeze that is choking our economy, and that made the 700 billion rescue necessary," Waxman said.

"Mr. Fuld will do fine. He can walk away a wealthy man, who earned over 500 million. But taxpayers are left with a 700 billion bill to rescue Wall Street and an economy in crisis.

"While Mr. Fuld and other Lehman executives were getting rich, they were steering Lehman Brothers and our economy toward a precipice."

There has been popular anger at the Wall Street bailout which many Americans, now struggling to pay their mortgages, blame on banks and financial institutions lining their pockets with the profits from the housing boom.

Date created : 2008-10-06