Alums face hazy future after Lehman Brothers collapse

After graduating last spring, Gupta joined the ranks of more than 100 University alumni employed at Lehman Brothers, the financial firm that officially filed for bankruptcy early Monday morning after failing to find a buyer.

Over the course of the weekend, employees said, it gradually became clear that no potential buyer would be willing to merge with the firm without assistance from the federal government. The announcement Sunday that Bank of America planned to purchase Merrill Lynch instead dashed the last hopes of a full merger for Lehman.

Several employees at Lehman, including Gupta, who just recently finished her job training at Lehman, said they were completely shocked by the news.

“I never thought this would happen,” Gupta said. “Literally until Sunday at 6 p.m., when it finally seemed clear that no deal would come through, I never thought that Lehman would declare bankruptcy.”

History professor Harold James, who specializes in financial institutions and crises, said it would take several months or possibly years for the effects of Lehman’s bankruptcy to play out in the U.S. economy. “We haven’t seen anything like this since the Great Depression,” James said. “America wasn’t in a recession up until this moment.”

Still in shock

Gupta’s surprise was echoed by many of her colleagues, who also said that, despite increasing turmoil in the markets, they had never so much as imagined, prior to this weekend, that things would go this far.

Still, several said they had been gearing up for the firm to enter tough times, especially since the sale of investment bank Bear Stearns to JPMorgan Chase last spring.

“I joined Lehman the day Bear went under,” said Daniel Ahn ’04, who works in commodities research as an energy economist. “I knew there were concerns about Lehman, but I thought one way or another, we were going to survive intact.”

In interviews Monday morning, Lehman employees said they had not quite finished processing the news of the firm’s decision to file for bankruptcy.

The individuals interviewed said that the atmosphere around the firm for the past few months had been very optimistic.

“Over the summer, people were really confident. We all had a lot of high hopes that we would pull through,” Gupta said. Still, she recalled, summer 2008 felt markedly different from summer 2007, when she had interned at the firm.

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“[In 2007] Lehman was doing better than any bank,” she said. “People here have always been committed regardless of the economy, but it was very different. It was great.”

For the past few months, the firm’s falling stock price has been an indicator of the financial troubles facing it, despite reassurances from the bank’s management, said Anthony Capozzoli ’84, a senior vice president at Lehman.

There was, he said, a disconnect between the internal projection of confidence and the external signals that trouble might lie ahead. “For everyone, the last six months has been a real dilemma because you have the senior management issuing statements with a lot of confidence that the company will come through the tough times, and you’ve got the market on the other hand sending the stock lower and lower,” Capozzoli said.

But even the firm’s leadership could not maintain the optimism through the past week. “Last Tuesday it got really acute,” he added. “Coming back to work on Wednesday when the firm came out with their hurried pre-announcement of expected earnings, and the stock kept going down, and rating agents said they might have to downgrade the agency, I think that was really the time people realized that the firm really could not continue the way it was going.”

Hoping for a merger

Even as Lehman’s stock plummeted last week, many employees seemed to hold out hope that the firm would at least pull through with a merger, most likely with the British bank Barclays or Bank of America, which instead announced its plans to purchase Merrill Lynch on Sunday.

“On Thursday and Friday, everyone realized that a merger was very probable, [and] most people were expecting Bank of America to buy the firm,” Capozzoli said. “As the firm stood on Friday, it was not only solvent, it was actually very, very well capitalized, but what I think everyone realized throughout the weekend was that with confidence in the bank shaken, that financial picture would change.”

Some Lehman employees said there may have been a chance to merge effectively with another firm, especially had a sale been attempted sooner. The telltale sign that it was too late came when Bank of America agreed to purchase Merrill, Capozzoli said.

“If you’re a Lehman employee, and you see Bank of America agreeing to merge with Merrill, you can make the conclusion that a full merger with Lehman is out of the question,” Capozzoli said. “The Bank of America evaluated the risks and walked away, and so common logic indicates that there’s no potential then to find another full merger partner.”

The decision to sell Merrill Lynch may help stabilize the markets a little, Capozzoli added, since it gives protection to what experts perceive as the “next risky bank.”

Dark day at the office

The atmosphere at Lehman’s Seventh Avenue headquarters in New York was laden with grim uncertainty.

“You remember that part in ‘Titanic’ where the band keeps on playing even though the water is rushing in and the ship is sinking? It’s kind of like that,” Ahn said.

Employees described their colleagues packing up their belongings into cardboard boxes and fielding recruitment calls from other financial firms, while outside they faced a media frenzy so large that barricades were set up to allow people passage in and out of the building.

“People are very sad. That’s the one universal thing,” Capozzoli said. “For some people, it’s a pretty catastrophic financial event, but I think that’s probably a minority of people. Most people are going to be ok, but there’s definitely an overwhelming sense of sadness just because there’s so many projects, so much work, so much collaboration, and it’s this reality that, barring some kind of incredible miracle, that all just stops right now. I can’t say I’ve really digested that.”

Lehman’s future, along with that of its employees, remains unclear. “On top of what will happen legally to the business structure of Lehman, we’re also waiting for information as to what will happen with employee compensation and health insurance,” Ahn explained.

The bigger picture isn’t so clear, either. “Hopefully the whole financial market doesn’t melt down in the next couple of days,” Capozzoli added.

The Lehman experience

In spite of the office turmoil and suddenness of the bankruptcy announcement, none of the employees interviewed displayed any resentment toward the higher management for the firm’s failure, and many spoke with fondness of their time at Lehman and the firm’s unique work culture.

Calling his time with Lehman “a fantastic chapter of my life,” Ahn said he was “100 percent confident that I will look back on this portion of my life and have no regrets. I learned so much here and met so many great people. I’m already looking forward to boring my grandchildren with stories about this grand old firm.”

Capozzoli also spoke of Lehman with affection, calling it a “place that challenged you to be creative.”

Lehman was also a firm where the large majority of employees were personally acquainted with upper management officials, Capozzoli said. He added that he did not blame the senior management for the decisions that led to Lehman’s bankruptcy because those decisions did not seem imprudent to him at the time they were made.

“It’s easy to say in hindsight, ‘It got too risky and too big and too lopsided in some of the risks that it took.’ But unlike the case of Bear, while you can certainly blame the management in hindsight, you can almost understand that the market just overtook them. They didn’t take improper risks,” he said.

Princetonians at Lehman

Princeton alumni worked at all levels of the company, and a growing relationship between the firm and the University had been developing, said Capozzoli, who was heavily involved with on-campus recruiting at the University.

“Over the last three or four years, the connection and the recruiting connection in particular between Lehman and Princeton has been getting stronger and stronger,” he said. “There was … something about the Lehman culture and the Lehman workplace, the emphasis on thinking independently and creating things that might be different than the standard, that I think really resonated with a lot of people at Princeton.”

None of the alumni interviewed had definite plans for their future, though a few said they would consider jobs outside the financial sector.

“I might return to academia,” Ahn said. “I might go explore other options outside of Wall Street.”

Gupta said she would likely try to use the Princeton alumni network to search for new jobs. “I’m pretty open to any alternative at this point,” she said, adding that some people have already offered her advice about employment.

Gupta said she still planned to show up for work today, though. Lehman has not yet officially announced which employees will be terminated.

“As a professional, a situation like this gives you an opportunity to reassess where the skills you’ve learned may reapply,” Capozzoli said.

In spite of all that has happened, the Lehman employees expressed a lingering affection for the firm and a resigned matter-of-factness about the uncertainty of their own futures.

“This is capitalism,” Ahn said. “It’s not always for the faint-hearted.”