This Indian startup CEO and ex Lehman Brothers employee recounts his extraordinary tale of survival

Financial markets across the world function on the predominant binary emotions of 'Greed' and 'Fear'. In the books, 'Greed' manifests itself with investors having money in the bank - money that one can afford to burn by placing bets entailing a degree of risk, with the sole objective of multiplying it. It is the cornerstone of capitalism, a driving force behind the very existence of businesses and validates the maxim of 'Nothing ventured, nothing gained'.

'Fear', on the other end of the emotional spectrum, stems from knowing the unknown. It is having the foresight of understanding the ramifications of a bet that goes wrong. It compels investors and market participants to turn more circumspect, temper down their exuberance and makes them appreciate the phrases of 'Discretion is being the better part of valor' or 'Living to fight another day'.

It is the perennial interplay of the two that determines the financial fortunes of not just investors and traders but also those of many an enterprise. While 'Fear' restrains investors and organizations from capitalizing on opportunities that entail a high risk-return trade-off; the preponderance of 'Greed', not just erodes the money on the table, but also the personal and organization credibility in the quest of greater profits. Richard 'Dick' Fuld, the erstwhile Chairman and CEO of Lehman Brothers stands testimony to the latter having led the organization into the business of subprime mortgages and innovative financial products that would have a ripple effect on the global economy at large.

Lehman - The Highs, Lows and everything in between

With $639 billion in assets and being the fourth largest investment bank in the U.S, Lehman's bankruptcy was the largest in financial history. Its collapse led to the snowballing of the global financial crisis which resulted in an erosion of market capitalization of over $10 trillion. Rather ironical for a company that managed to survive through the Great Depression of 1930, the world wars as well as the Russian debt crisis of 1998.

While realms of news print and a large quantum of digital real estate have been devoted to covering the 'Sub-Prime' crisis since 2007-08, this article is an insider's perspective on the trials and tribulations experienced as an employee of Lehman Brothers during the darkest days of the organization's existence and the significance of the learning experience for the future.

My stint at Lehman Brothers began in 2005, at their London office. As a fresh young graduate with a plethora of dreams to fulfill, it was a huge privilege at the time to start your financial career in an investment bank. I had the opportunity to don several hats in the first few months, working across various verticals including their Fixed Income business, their Sub-prime mortgage division, Futures Trading, and also their Equities & Electronic Trading division. To be in the thick of things at a relatively young age with one of the largest investment banks in the world was overwhelming but also a great opportunity to learn. As the markets grew rapidly between 2005 and 2007, I had a professionally enriching experience being in the midst of a fast-paced environment surrounded by the smartest talent pool in the business. Not to forget mentioning about the great organizational culture.

Adversity, if I could put it my words, is a true test of character – be it for a person or even an organization. When the credit crisis erupted with cracks in the U.S. housing market and the fall of Bear Sterns, Lehman eliminated 2,500 mortgage-related jobs and by August 2008 had laid-off more than 6,000 workers. It was a situation wherein every employee used to come to the office thinking whether a pink slip would be awaiting him. We would witness a pressurized corporate communications team drafting messages around how senior bankers were stepping down “to pursue personal interests”, and how the junior level employees were being given bigger roles.

All this while the company underwrote more mortgage backed securities than any other firm resulting in an $85 billion portfolio which was four times its shareholders' equity – a clear case of greed trumping over rationality without an eye on the consequences. As we hit the weekend of 13th September 2008, eternal optimists believed that the bank would be rescued and go the Bear Sterns way.

The weekend of 13th September was a long weekend that I will not forget. We stayed close to the Lehman office, watched the news all weekend, and try to imagine in what form will Lehman continue from 15th September onwards.

Contrary to what was expected to unfold, Bank of America, after initially showing signs of being open to buying Lehman, ended up acquiring Merrill Lynch. Freddie Mac and Fannie Mie, which were both US mortgage houses were lapped up by the government. Goldman Sachs and Morgan Stanley were accorded the status of a commercial bank, so they could avail liquidity funding from the government to survive, if the need arose. On 15th September 15 2008, the inevitable took place. A knockout punched was delivered to the financial industry as Lehman Brothers filed for bankruptcy.

For a Lehman employee at the time, the consequences couldn’t have been worse. You lost your job - you lost all your Lehman stock holdings, and thereby foregoing an expensive lifestyle which could not be sustained with any other job. What made it worse was an indefinite period of global recession that was staring at us. Several other colleagues went through a tougher time, many of whom still haven’t landed a job again in the financial services industry. Immigrant Lehman employees in the States and in the UK had to forego their work permits and head back to their home countries.

As fate would have it, Nomura agreed to take over Lehman Brothers Europe and Asia teams. As part of the deal, Nomura only acquired Lehman's employees in the affected regions and not the other assets. I was handed a lifeline and secured a job at Japan’s top investment and brokerage firm, where I would manage their electronic and algorithmic trading products.

Implementing my Learning

While the episode made me a stronger, the learning from it is something which I look to implement in my present role as a Founder and CEO of a company that makes risk management, online and algo trading platforms.

As much as I have been a fan of Gordon Gekko’s legendary “Greed is good” speech, I do admit that the element of fear justifies the need for an effective risk management apparatus - something that was amiss at Lehman.

One lives and learns, and my experience at Lehman has played its role in turning me wiser after the fact.

(Image Credits: Indiatimes)

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(About the author: This article has been written by Kunal Nandwani, Founder and CEO – uTrade Solutions.)