Life After Lehman Brothers: Dick Fuld’s Murky Investment SecretsVW Staff
An investigative report by FOX Business Network’s Charlie Gasparino on former Lehman Brothers head Dick Fuld, and his post-financial crisis work, including involvement with In The Car.
Since his inglorious exit as chief executive of Lehman Brothers in 2008, Dick Fuld has preferred to keep a low public profile. But nearly from the moment the storied investment bank filed for bankruptcy, Fuld has been planning, albeit quietly, a comeback as a dealmaker.
It might sound like pure hubris that the man many people blame for the downfall of what was then the fourth-largest U.S. investment bank, the triggering event for the broader financial crisis, also believes he should have a second chance on Wall Street.
But the notion isn’t crazy – at least to Fuld.
During his long career, nearly all of which he spent at Lehman, Dick Fuld was known as “The Gorilla” for his tough demeanor and endless drive to make the firm among Wall Street’s top investment banks — which it was, at least until its fall.
Now, at 69 years old, Fuld is laying the groundwork for his return to the business that made him both wealthy and seen by some as a public pariah.
In 2009 he rented an office in midtown Manhattan, created a boutique investment firm he named Matrix Advisors, and together with a handful of staffers, Fuld was once again pitching deals using the Rolodex of contacts he gleaned during his long career.
One of his first deals—and possibly the biggest for Dick Fuld since leaving Lehman– involved an insurance company called “In The Car.”
The concept was simple: When partnered with an insurance provider and an automobile manufacturer, In The Car would offer a new type of incentive plan to consumers. Instead of cash or favorable financing terms, consumers would get a year of free auto insurance with every car purchase.
Some investors presented with the idea thought it was farfetched. They questioned why a car company would want to offer free insurance instead of a simple cash rebate to entice buyers.
But others didn’t think the idea was so outlandish, and by 2011, In The Car started to take off. Dick Fuld and the company’s CEO, Robert Wallach, an insurance executive he had known for nearly 30 years, convinced insurance giant MetLife and car manufacturer General Motors to take part in a pilot program in two states. GM would sell the cars through its dealers, while MetLife agreed to provide the insurance policy.
Of course, no investment is guaranteed, but the way Wallach and Fuld explained In The Car to investors, it was as close to a sure thing as you can get on Wall Street, several investors told FOX Business. And the company’s new partners seemed ready to agree: GM, under pressure to sell cars after receiving a government bailout to survive the recession, believed it could buy the insurance from MetLife at a wholesale price and easily earn a decent profit based on the volume of cars sold, people at the company said at the time.
MetLife had no problem giving GM such a discount since it would have access to GM’s large consumer base for future sales, people at MetLife said. Moreover, car buyers, hurting from the economic slowdown from the financial crisis, would have gotten a break on one of their biggest expenses, buying insurance.
In The Car, meanwhile, would earn fees and commissions for every car sold. Based on Wallach’s projections of sales, the company was worth $20 million – a valuation that was touted to raise millions of dollars from investors, according to people who were pitched the deal. Eventually other investors came to believe that the company was worth as much as $50 million, people close to the company said.
But today In The Car is anything but a success story.
See full article here by Fox Business News