Monday, October 13, 2008


Back in October 2006, Career seemed stuck at Technology department of National Commodity and Derivatives Exchange. Being an opportunist, take it ambitious here; I was trying everything to extract something useful from a free falling organization. Though we were getting more than expected respect there, being first batch from IIT, we were pretty much free with nothing to do whole day. I got to enjoy time with some really wonderful colleagues, who became best friends for life and amazing seniors. I am kind of person who never like to sit idle, want to keep performing and trying and learning new things. In a very late attempt, with the help of a very experienced, senior person, I tried my luck and got a chance to work in Risk Management. This was my first break through to enter Quantitative Finance and to work under an amazing head.
Working in Risk Management at NCDEX led me to give a try to my ‘once dream job’ during placement season of IIT Bombay. When I got a call from HR of Lehman Brothers, I was not at all aware of what all departments are there. Even I didn’t know which department I got call from. I still remember I started studying about CDO when a colleague told me that I got call for Exotic Derivatives. With no preparation, very little idea of whats going to happen, I went for an interview at Lehman Powai, I dint even knew where the building is. Having good luck and little knowledge of commodities, futures, options-all owing to my head at Risk Management at NCDEX, I got through Lehman, Exotic Derivatives. I believed this was because of lucky charm of my fiancée, we got engaged on 1st April 07!!
Life at Lehman started wavy. Got some good friends, handled some hard people. Some were frustrated by the ‘Back Office’ status, some were contended with however things are. This is all part and parcel. This entire time one thing which was on my side is my ability to work hard. And again luck came in my favor to work in Single-stock Exotic. And here began best time of my career.
[Derivatives means financial instrument whose value depends on underlying asset.
Exotic Derivatives means derivatives which are not plain vanillas but either:
1) Payoff is complex
2) Hedging is complex
3) Underlyings are complex]

I made so many good friends. I got little lucky to join before a new batch so that I got friends with both the batches. Some of these are really good friends and I am happy to get respect from all of them. I also got lucky to work on various parts of exotic-derivatives: Option Pricing and Managing Books. Meanwhile, got in good terms with senior traders at London. Whole conception of ‘London guys are mean’ was broken. I began to believe some of them are much better than what popular belief was.
Very soon we were restructured to a new team. We were all happy in a team. I liked all my juniors, with getting proper response from all of them. I never hesitated for any work. I made sure to set an example to my team and staying late if required, standing by the team, making full efforts to protect team’s interest.
I got married and all were happy. We rented a flat 10min walk from office. Her office was in the same building as mine. Everything was going on happy-go-lucky. While this story was building, dark clouds started gathering, on whole financial market.
We were happy in our own small world. Having fun whole day and coming to office was anything but bad. Enjoying days as they pass, totally unaware of the big bubble that was about to burst.
In its first step it blew Bears Sterns, which got sold to JP Morgan Chase at $2 a share. Jammie Dimon, JPM came out heroic in taking over Bears Sterns. Next in line was famous Fannie-Freddie. On 13th July 08 U.S. Treasury and Federal Reserve effectively nationalized mortgage finance companies Fannie Mae and Freddie Mac to support U.S. housing market. Meanwhile, Lehman stock was falling free under gravity (Lehman fell by 44% from 11th July to 14th July). We saw Lehman share price coming from 19 to 17, to 13, to 9… All this while we never lost our hopes. There were hopes that someone would definitely take over lehman-may be everyone had belief that we are still good or we were too complacent. Each day like a to-be-married girl, we get name of a possible buyer. With each passing news shares were moving 5 to 10% in either direction. To start with KDB (Korean Development Bank), but its rightly said about Koran belief: ‘if a US investment banker is selling you something, he is cheating’. Hence the regulator’s caution caused lehman losing KDB. Then we were hopeful with Barclays, or a consortium of other banks who could take us. Nothing working out we saw lehman shares down by 45% to $7.79 on 9th September and another 42% drop on 11th Sep to bring it to $4 a piece. We were very much hopeful that over the weekend some deal will be finalized.

15th September 2008
On Monday morning, I casually switched on TV to see the news and first thing I saw is: BREAKING NEWS-LEHMAN BROTHERS FILING BANKRUPTCY. It was totally unbelievable for me, for everyone. When I reached office, I was in no mood to accept it. We got an official mailing stating that Lehman Brothers Holding Inc. has filed chapter 11 Bankruptcy. Chapter 11 implied Lehman will get some buffer time to see where the world moves in couple of days. I tried my best to boost my team to work and prepare morning report on that day. But, of no use. There was no work since then. Its all over. No one knew whats going to happen, what going on. Everyone has his/her own responsibilities. Millions dreams were shattered, no clue of what to do next. May be the company liquidates tomorrow and we belong to nowhere. Not everyone was even ready to prepare resume. Bearing our own trouble everyone was sharing and helping out other more needy. Another bad news of the day: Merrill Lynch & Co Inc to be taken over by Bank of America Corp.
Immediately after Lehman bankruptcy, other I Banks created a liquidity pool of $70bn to face any liquidity crunch after lehman. Worst thing, lehman was not allowed to participate. It seems, what we were dreaming over the weekend, that some I-Bank will take over; These I-Banks were preparing for our funeral!
Part of the reason why Lehman was forced into bankruptcy was because its prime brokerage clients began pulling out their capital. Lehman lost 50 percent of its prime brokerage assets in the last week of its existence. So the fear that Lehman could go bankrupt contributed to its quick downfall.
Prime brokerage clients are like depositors. If they feel their money is unsafe they will cause a run on the bank. But unlike with bank deposits, there is no government-backed insurance plan to protect their funds.
Lehman Brothers: Post 15th September 2008
16th September 2008: Barclays agreed to buy parts of Lehman's North American assets for $1.75 billion.
22nd September 2008 - Nomura Holdings Inc says it will buy Lehman's franchise in Asia Pacific and acquires Lehman's business in Europe. Deal does not include Lehman Powai office.
We were still stucked, uncertain for our future, career. There was news of Barclays, Credit Suisse, Nomura in talks but nothing concrete. Best thing with us was that we were going to office!
6th October 2008-Nomura Holdings COO, Mr. Hiroshi Tanaka came to Powai office to announce the deal. Hopefully there wont be any layoffs as they said retaining the remuneration. May be it’s the pause for a very bad time.

Others: Post 15th September 2008
September 16 - Fed announces plan for $85 billion loan to American International Group Inc in return for 80 percent stake
September 21 - Goldman Sachs Group Inc and Morgan Stanley become bank holding companies regulated by the Fed. End of stand alone Investment Banks and the real cream ‘Wall Street Jobs’.
September 25 - Washington Mutual is closed by the U.S. government in the largest failure of a U.S. bank. Its banking assets are sold to JPMorgan Chase & Co for $1.9 billion.
October 3 - The U.S. House of Representatives voted 263-171 for the revised bail-out plan in their second attempt to approve the $700 billion deal.

The story continues. But this is enough to experience at the age of 26? What we have faced was unimaginable for the 158 years old Investment Bank. I still remember the time I joined lehman in June ’07 when Lehman was around ~$ 76 and now I have seen Lehman trading in 5 pence!!
I have seen glorious time of longest running CEO of an I-Bank: Dick Fuld and now I have seen his testimony, posed as a villain.

Wednesday, October 8, 2008

15 September