Lost weekend: Lehman's collapse

One year ago, banking behemoth Lehman Brothers crumbled, its Chapter 11 filing sending shockwaves across the world economy. A select few lawyers were at Ground Zero of the implosion. Among them was Lori Fife, a business finance and restructuring partner at Weil Gotshal & Manges, Lehman's bankruptcy counsel. Along with Weil bankruptcy legend Harvey Miller, Fife has been on the case for the past year.

To mark the one-year anniversary of the bankruptcy filing, The Am Law Daily spoke with Fife (pictured above) about the events surrounding Lehman's fall, and about what could have been done to stop it.

Hi Lori. To start, can you tell us how you first got involved in the Lehman case?

I was actually in the office that Saturday (13 September). I was in to prepare for a speech I was going to give. And I got an email from Harvey Miller. All the partners in the department did. He asked if anyone could help, that there was an emergency.

Did he say what type of emergency?

No, he didn't. I had an idea that it related to Lehman, [but] I wasn't positive. The email asked for volunteers, I volunteered. I had absolutely no idea what I was getting myself into.

Did you have any idea that Lehman might be filing for bankruptcy?

Absolutely not. I never worked on a Lehman matter. Lehman was always a very large client of the firm's, but I never had any dealings with them before. So I went to Harvey's office. Inside Harvey's office were senior partners. And they told me that the situation with Lehman was getting more serious and that they needed additional partners [on the case].

You said you already had an idea that something was going on with Lehman?

I was aware generally from the newspapers that Lehman was in crisis and that there were discussions with other institutions about potential mergers. I certainly did not expect Lehman to file for bankruptcy two days afterwards.

So at that point, the conversation with Harvey Miller wasn't necessarily, "Lehman is filing for bankruptcy," it was more like, "this situation is getting very serious."

Very serious. I was told, "We don't know what's going to happen with the merger discussions, with the government. We do need to prepare for some sort of potential Chapter 11 filing." But we are often retained by clients to prepare for a potential Chapter 11 - which often doesn't happen. So it was just sort of a prudent thing to do, given the circumstances.

What was your level of preparation for a possible bankruptcy? What was Lehman's?

Lehman didn't expect to fail. So they weren't spending weeks preparing for a Chapter 11 case. They were focusing on trying to save themselves in so many other ways. And when I got involved, I learned that we really weren't prepared to file for Chapter 11, if in fact we needed to.

What do you mean when you say that Weil Gotshal wasn't prepared to file at that point?

We didn't have sufficient information to actually file Chapter 11 in a sort of controlled way.

Sufficient financial information?

Usually a company the size of Lehman has financing lined up before it files for Chapter 11, and this company certainly didn't have that. It didn't have any sort of plans in place. We normally take weeks, if not months, to actually plan a controlled Chapter 11 case. But putting aside planning, we didn't have any facts. Nobody at Lehman was spending the time that was necessary to give us information.

What happened on Saturday was, we had a short meeting with the Securities and Exchange Commission (SEC). They wanted to get a sense as to what our plans were and where we were in the planning stages for Chapter 11. And we told them that we were nowhere. That Lehman had no plans to file for Chapter 11. That we fully expected that there would be some other bow-out or merger. Or something else. At that point, Barclays was still very much a real possibility and Bank of America was still a possibility, too. And still there was a spin-off possibility.

What happened the Sunday before you filed?

We came back very early [Sunday] morning to prepare for what was going to be a Lehman board of directors meeting at noon. I think the board was originally scheduled to discuss the various alternatives [for the company]. We learned at that point that Barclays was no longer an alternative. So now things were getting more serious. Things at Lehman were getting very tight. We were in frequent conversations with governmental agencies. People in our offices started to kind of gear up.

Gear up in what way?

You have to understand that Lehman is actually thousands of entities across hundreds of countries. And one of the key decisions that, as lawyers, you have to work on is what entities to file [for bankruptcy]? Is it Lehman Brothers Holdings Inc, which is the parent entity? Or Lehman Brothers Inc, which, as a broker-dealer, cannot file for Chapter 11? You have hundreds of different affiliates in different countries. So we were getting calls from England and France... things were getting very, very crazy.

Were you in contact, at this point, with higher-level officials at the Treasury Department and at the Federal Reserve?

It started to get more high-level. And then a decision was made that we should all meet in person. So Harvey Miller, [Weil Gotshal corporate department co-chair] Thomas Roberts, [Weil Gotshal chief executive] Stephen Dannhauser, and myself went down to the Federal Reserve. And that was sort of like the first time I kind of started to say, "Well, this is kind of momentous." And we walked in and Citigroup CEO Vikram Pandit walked out. And we knew a lot was going on.

Who did you meet with at the Federal Reserve?

People from the Securities Investor Protection Corporation and people from the Federal Trade Commission and people from the Federal Reserve. SEC chair Chris Cox was there. And the Lehman people, who I had never met before. We had a meeting with them and we basically tried to convince them to sell the company. The Lehman people tried to show [the government officials] that [there was] sufficient collateral in order for them to provide Lehman with funds to support the company.

So you were essentially pleading with the government not to let Lehman fail?

Yeah, totally.

At what point did you realise that the government felt Lehman should just be allowed to go under?

It became pretty clear in that meeting that they weren't interested in providing any funding for Lehman.

The government can't instruct you to file for bankruptcy. But they essentially came in and told you that that's what they strongly suggested, right?

Pretty much. And [after that meeting] we left [the Fed], and we went to Lehman [headquarters] and to the Lehman board meeting, and the business people reported on what had happened during the day. And in the middle of the meeting, Chris Cox interrupted the meeting - well, Lehman CEO Dick Fuld got a message through his secretary that the government wanted to interrupt our board meeting. And they did. And somebody [in the meeting] said, "Are you telling us to file [for bankruptcy]?" And [Chris Cox] took a break, and I think he spoke to his lawyer. And I think his lawyer probably told him, "You can't do that." He got back on and he said, "No, but... " It was a very, very strong suggestion.

Then we got back to the office and we began to basically prepare the papers to file. And by that point we had made a decision that if we had to file we would just file the holding company. And we basically filed a very, very skinny petition. You know, it was very minimal paperwork. And so we got back, and we ended up filing at maybe 2 or 3 o'clock in the morning that Monday (15 September).

Did it start to feel at all surreal at this point?

The whole thing was very surreal. Really from the moment we got to the Federal Reserve and after that. And particularly coming back after the Federal Reserve to Lehman for the board meeting.

What do you think, now that you've had a full year to look back on it all?

It's very unfortunate that the government didn't help Lehman. And I think that we've all witnessed the effects of it. And I think in retrospect, it's clear that they made a mistake.

During this period, did you have a sense that the Lehman bankruptcy would have major ramifications for other financial institutions?

I didn't anticipate that it would lead to a global financial crisis, but we certainly did recognise that it would have very broad implications and we tried to tell that to the governmental agencies. And we did say that, and they just didn't listen. They just didn't pay attention. I mean, we understood the complexity of the [financial] transactions that Lehman was involved in prior to the commencement of the case.

The government must have known the same thing you did.

Sure they did. And I don't understand why they didn't understand how difficult it would be to unwind all of these transactions.

So you were looking at this potential bankruptcy and thinking that the government's plan to let Lehman fail could have major implications.

Exactly. And we kept saying "this could be done in a much better way." I mean, if the government could have at least loaned us the money to do [the bankruptcy] in a planned way - like a soft landing into Chapter 11 - we could have avoided so many of the issues that the whole world faced. We could have done so many different things in Chapter 11. Like sales of assets in a planned way, as opposed to this rushed [proposed] Barclays sale. Or splitting up the company, or creating a good company and a bad company. There were a lot of different strategies they could have pursued.

Any number of things the government has done with much smaller companies...

Exactly, but why not with Lehman?

This article first appeared on The Am Law Daily blog on americanlawyer.com.