Toomre Capital Markets LLC

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Possible Bankruptcy for Joe Gregory of Lehman Brothers

During the past few days, there have been a large number of readers of the Toomre Capital Markets LLC ("TCM") website looking for more information on the bankruptcy filing of Lehman Brothers. Some of those inquiries have been looking for details on both "Joe Gregory" and "bankruptcy".

This was a bit surprising because there were few other searches for the names of other Lehman Brothers executives in combination with the term bankruptcy. Perhaps the readers were looking for more information about Joe Gregory's extravagance of using a helicopter to commute back and forth to work in mid-town Manhattan from his (plural) homes on Long Island. TCM has previously written about Joe Gregory and his extreme example of hubris and excess in the posts Employee Losses in Lehman Brothers Stock Holdings and Initial Reflections on Demise of Lehman Brothers.

On Sunday, September 21st 2008, New York Magazine published an article about the pain of sudden down-sizing that many are feeling with the demise of Lehman Brothers in an article entitled The Rage of the Previously Rich. Buried in the middle of that article was the text:

On Friday, September 12, the Wall Street Journal reported that Lehman’s former president, Joe Gregory, who was demoted along with former CFO Erin Callan in a management shake-up in June, was listing his Bridgehampton house on Surfside Drive for $32.5 million. The collapse of Lehman’s stock is a blow to Gregory’s lifestyle. He reportedly used to travel by helicopter to midtown from his $3.5 million mansion in Huntington, which was recently renovated, according to a Sotheby’s broker. According to one source, Gregory’s financial adviser was in negotiations with Lehman’s attorneys at Simpson Thacher & Bartlett, working to avert his filing for bankruptcy, after he borrowed money against his Lehman stock to pay for the renovation. “He owes a lot of money for it. They called the margin loan” late last week, the source said.

If this news is indeed true, one might surmise that Joe Gregory was as good at managing his own personal finances as he was at managing the leveraged risks of Lehman Brothers. Is it not amazing that an executive who came out of commercial paper trading and never personally traded anything longer than term unsecured repos rose to first run the mortgage department, then also the high-yield area and eventually all of the mighty fixed-income division? Eventually he rose to become the President of Lehman Brothers and along the way was rewarded with many millions of dollars of compensation.

The interesting question is what did Joe Gregory learn and do about risk and leverage during his great rise and then apparent sudden fall to bankruptcy. Perhaps these great issues were reflected upon during those helicopter rides of hubris and excess? Somehow experience suggests there were errors in such thoughts, if they ever even occurred.