Lehman Opens the Black Box, Finds the Love

Sam Molinaro, you are no Erin Callan.

As chief financial officer of Lehman Brothers, Callan faced a grim fate yesterday, when Lehman stock plummeted amid worries that it teetered on the edge of the cliff that Bear Stearns fell off last week.

But today, Lehman's shares have restored all of yesterday's losses, and then some, thanks to Callan's confidence-inducing transparency. Lehman chose to open up the black box with its earnings announcement this morning in a way that no other financial institution has. Its earnings call included details about its mark-to-market assets, its liquidity position as of yesterday, how it values its assets, where it sees buying opportunities, and how it plans to continue reducing its leverage exposure.

Callan (profiled in the current issue of Conde Nast Portfolio) spoke for nearly an hour before taking questions, and then there were only a few, because she'd said nearly everything there was to say. There were no responses like "I don't have that number in front of me " or "We don't break that figure out" or "I can't comment on that." There was just information. Lots and lots of information: the good, bad, and ugly.

As chief financial officer of Bear Stearns, on the other hand, Molinaro sought to calm the jittery markets during an impromptu conference call last Friday. As we all well know, that effort failed spectacularly.

Other than saying the bank's capital ratios were in "good shape," almost no details were disclosed during the Bear call. They said they took the loan from J.P. Morgan to buy them time to "get the facts out into the marketplace," but they chose not to disclose those facts with investors.

The stampede of Bear clients to the exit door last week wasn't due to any evidence of deteriorating fundamentals. It was due to the lack of them.

The sharp contrast to the approaches from Bear and Lehman shows that investors clearly want Wall Street to disrobe, showing all of its flaws in the harsh light of the day.

by Megan Barnett