Lehman CFO Callan, COO Gregory ousted from posts

http://www.marketwatch.com/News/Story/lehmans-cfo-coo-ousted-turmoil/story.aspx?guid=%7B897F3C46%2D6458%2D47A8%2D8299%2D5D580FB0438E%7D

Lehman CFO Callan, COO Gregory ousted from posts

Management's credibility tested by $6 billion capital raise, valuation questions
By Alistair Barr, Greg Morcroft & Riley McDermid, MarketWatch
Last update: 11:13 a.m. EDT June 12, 2008
Comments: 131
NEW YORK (MarketWatch) -- Lehman Brothers Holdings Inc. said Thursday that Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory are leaving their posts, becoming the latest victims of the credit crisis swirling across Wall Street.
Video: Discussing downsizing

Oppenheimer analyst Meredith Whitney gives her take on Lehman Brothers, among other topics. (June 11)
Shares of Lehman (LEH:
















15.48, +1.76, +12.9%) rose 1.1% to $24 during early trading but quickly turned lower, leaving them with a loss of more than 40% during the past month. The shares have been buffeted in recent months as investors question the firm's capital position and its transparency amid the ongoing credit crisis. 
Lehman said Bart McDade would replace Gregory, while Ian Lowitt has been tapped to replace Callan. 'Headline risk will weigh on the stock.'
— Matthew Albrecht, S&P

Callan, who had served as the firm's CFO since December 2007, will be rejoining the investment-banking division at Lehman in a senior capacity, the company said in a press release. Read related commentary. 
On Monday, Lehman said it sold $130 billion in assets in recent months, reducing leverage, but analysts and others said questions remain about the brokerage firm's illiquid holdings and how it has valued some of those exposures. 
Lehman also reported a preliminary net loss of $2.8 billion for the second quarter ended May 31, surprising analysts and investors, and unveiled plans to raise $6 billion by selling new shares and preferred securities. See full story. 

Some analysts said Lehman's management had lost credibility because earlier this year executives said the brokerage firm didn't need to raise any more capital. But the credit crisis has taken another turn for the worse in recent weeks, putting intense pressure on Lehman. 
"We believe the moves result from the company's preliminary results, which included the first quarterly loss since going public, and its planned $6 billion capital raise, which has garnered investor criticism," said Matthew Albrecht, analyst at Standard & Poor's Equity Research, in a Thursday note to clients. "Headline risk will weigh on the stock." 
Albrecht cut his price target on Lehman shares to $27 from $35 but maintained a hold rating, saying the company has acted aggressively to reorganize its balance sheet into a more financially viable structure. 
'Appropriate response'
"This is an appropriate response. There were specific actions taken in the last six months that suggested Lehman was not on track where they should have been," said Dick Bove, analyst at Ladenburg Thalmann, in an interview on CNBC. 
Lehman made "serious miscalculations" when trying to hedge mortgage-related exposures and other holdings of troubled assets, he said, adding that management should have tried to raise more capital earlier than it did. 
Callan and Gregory "deserved to be fired because they did things wrong," Bove added. 
By the same token, Dick Fuld should not be ousted as chief executive because he has done so much to build the firm during a long tenure, Bove continued. 
"I wouldn't nail [Fuld] because of the last two quarters," Bove said. "They need to look at his record over the last couple of years."  
Alistair Barr is a reporter for MarketWatch in San Francisco.
Greg Morcroft is MarketWatch's financial editor in New York.
Riley McDermid is a MarketWatch reporter based in New York.