Tags: Warren | Buffett | Help | Lehman

Buffett Passed Up Three Chances to Help Lehman

Friday, 12 Mar 2010 09:57 AM

 

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Warren Buffett had at least three opportunities in 2008 to help Lehman Brothers Holdings Inc., but failure to enlist his aid contributed to Lehman's bankruptcy and the global financial crisis, a court-appointed examiner said.

At times Buffett, who runs Berkshire Hathaway Inc., thought Lehman appeared not to be sincere or forthcoming enough to warrant his help, while at other times efforts to seek his financial support were never taken to fruition or were abandoned, the examiner said.

Discussion of efforts to win backing from perhaps the world's most revered investor were outlined in a report by Anton Valukas, chairman of the law firm Jenner & Block, after his more than year-long investigation into Lehman's collapse.

Lehman's Sept. 15, 2008, bankruptcy remains by far the largest bankruptcy in U.S. history.

The report laid out the following series of events:

Lehman Chief Executive Richard Fuld called David Sokol, the head of Berkshire's MidAmerican Energy Holdings Inc unit and a trusted Buffett executive, on March 27, 2008, to gauge interest in a $3.5 billion preferred stock investment from Berkshire.

Indeed, Lehman even went so far as to prepare an internal employee memo announcing the investment.

The next day, Fuld and Buffett spoke to discuss an investment of at least $2 billion, according to the report.

Buffett, though, wanted Lehman executives to invest under the same terms, and "took it as a negative" when Fuld resisted because the executives already took much of their compensation in stock.

Buffett also "did not like" Fuld's complaint about short sellers driving down Lehman stock, because such blame "was indicative of a failure to admit one's own problems."

Treasury Secretary Henry Paulson then "reluctantly" called Buffett at Fuld's behest and signaled he would like the billionaire to invest in Lehman, but "did not load the dice."

Buffett looked through Lehman's annual report, noting problems with some assets. He then learned of a "$100 million problem in Japan" that Fuld had not mentioned, making him feel Fuld had been "less than forthcoming." He steered clear.

Lehman reached out to Sokol in late August or early September 2008 to consider a new investment, according to the report, but nothing got done and Buffett dismissed the idea as "unrealistic."

Then, as matters became dire, Barclays PLC on Sept. 13, 2008, reached out to Buffett to discuss his providing $5 billion of protection to "guarantee Lehman's operations until a Lehman-Barclays deal closed."

Buffett "expressed interest in that possibility, but Barclays did not pursue it," the report said.

Barclays ultimately bought a large chunk of Lehman's operations. Berkshire in late September 2008 bought $5 billion of Goldman Sachs Group Inc.  preferred stock and warrants to buy an equal amount of common stock.

Those warrants are now well in the money.

Buffett's assistant, Carrie Kizer, did not immediately return requests for comment.

© 2014 Thomson/Reuters. All rights reserved.

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