Presumably E&Y will be okay with this since they’re standing by their audits of LEH so we’re sure no one at 5 Times Square will be interested in tomorrow’s testimony.
Mr. Chairman, Ranking Member Bachus, and Members of the House Committee on Financial Services, you have invited me here today to address a number of public policy issues raised by the Lehman Brothers bankruptcy report filed by the Examiner.
Since September of 2008, I have given much thought to the financial crisis and the perfect storm of events that forced Lehman into bankruptcy. Everyone’s focus is now on how to prevent another crisis. The key is how regulation and governance should be deployed going forward to better protect the financial markets and the entire system.
The idea of a “super regulator” that monitors the financial markets for systemic risk, I believe, is a good one. To be successful in today’s challenging environment, this new regulator should have actual experience and a true understanding of the business of financial institutions, the capital markets and risk management and must be given the resources sufficient to accomplish its important mission.
My view is that the new regulator also should have access, on a real-time basis, to all information and data regarding transactions, assets and liabilities, as well as current and future commitments. In addition, we should put in place established and effective methods of communication between the regulator and the firms being regulated, all of whom should be guided by clear standards for capital requirements, liquidity and other risk management metrics. The job of the new regulator can only be done, in my opinion, with the creation and utilization of a master mark-to-market capability that determines valuations and capital haircuts on all assets, commitments, loans and structures. In short, to have a fair and orderly market, I believe we need a single set of transparent rules for all of the participants.
You have asked specifically about the role of the SEC and the Federal Reserve Bank of New York. Beginning in March of 2008, the SEC and the Fed conducted regular, at times daily, oversight of Lehman. SEC and Fed officials were physically present in our offices monitoring our daily activities. The SEC and the Fed saw what we saw, in real time, as they reviewed our liquidity, funding, capital, risk management and mark-to-market processes. The SEC and the Fed were privy to everything as it was happening. I am not aware that any data was ever withheld from them, or that either of them ever asked for any information that
was not promptly provided. After an extended investigation into Lehman’s bankruptcy, the Examiner recently published a lengthy report stating his views.
Despite popular and press misconceptions about Lehman’s valuations of mortgage and real estate assets, liquidity, and risk management, the Examiner found no breach of duty by anyone at Lehman with respect to any of these.
Speaking of asset valuations, the world still is being told that Lehman had a huge capital hole. It did not. The Examiner concluded that Lehman’s valuations were reasonable, with a net immaterial variation of between $500 million and $2.0 billion. Using the Examiner’s analysis, as of August 31, 2008 Lehman therefore had a remaining equity base of at least $26 billion. That conclusion is totally inconsistent with the capital hole arguments that were used by many to undermine Lehman’s bid for support on that fateful weekend of September 12, 2008.
The Examiner did take issue, though, with Lehman’s “Repo 105” sale transactions. As to that, I believe that the Examiner’s report distorted the relevant facts, and the press, in turn, distorted the Examiner’s report. The result is that Lehman and its people have been unfairly vilified.
Let me start by saying that I have absolutely no recollection whatsoever of hearing anything about Repo 105 transactions while I was CEO of Lehman. Nor do I have any recollection of seeing documents that related to Repo 105 transactions. The first time I recall ever hearing the term “Repo 105” was a year after the bankruptcy filing, in connection with questions raised by the Examiner.
My knowledge, therefore, about Lehman’s Repo 105 transactions, and what I will say about them today, is based upon my understanding of what I have recently learned.
As CEO, I oversaw a global organization of more than 28,000 people with hundreds of business lines and products and with operations in more than forty countries spread over five continents. My responsibility as the CEO was to create an infrastructure of people, systems and processes, all designed to ensure that the firm’s business was properly conducted in compliance with the applicable standards, rules and regulations.
There has been a lot of misinformation about Repo 105. Among the worst were the completely erroneous reports on the front pages of major newspapers claiming that Lehman used Repo 105 transactions to remove toxic assets from its balance sheet. That simply was not true. According to the Examiner, virtually all of the Repo 105 transactions involved highly liquid investment grade securities, most of them government securities. Some of the newspapers that got it wrong were fair-minded enough to print a correction.
Another piece of misinformation was that Repo 105 transactions were used to hide Lehman’s assets. That also was not true. Repo 105 transactions were sales, as mandated by the accounting rule, FAS 140.
Another misperception was that the Repo 105 transactions contributed to Lehman’s bankruptcy. That was not true either. Lehman was forced into bankruptcy amid one of the most turbulent periods in our economic history, which culminated in a catastrophic crisis of confidence and a run on the bank. That crisis almost brought down a large number of other financial institutions, but those institutions were saved because of government support in the form of additional capital and fundamental changes to the rules and regulations governing banks and investment banks.
The Examiner himself acknowledged that the Repo 105 transactions were not inherently improper and that Lehman vetted those transactions with its outside auditor. He also does not dispute that Lehman appropriately accounted for those transactions as required by Generally Accepted Accounting Principles.
I have recently learned that, in 2000, the Financial Accounting Standards Board published detailed accounting rules for transactions of this very type, described them and dictated how they should be accounted for. In 2001, Lehman adopted a written accounting policy for Repo 105 transactions that incorporated those accounting rules. E&Y, the firm’s independent outside auditor, reviewed that policy and supported the firm’s approach and application of the relevant rule, FAS 140.
As I now understand it, because Lehman’s Repo 105 transactions met the FAS 140 requirements, that accounting rule mandated that those transactions be accounted for as a sale. That was exactly what I believe Lehman did. Lehman should not be criticized for complying with the applicable accounting standards.
In other words, those transactions were modeled on FAS 140. The accounting authorities wrote the rule that expressly provided for those transactions and how they should be accounted for. To the best of my knowledge, Lehman followed those rules and requirements.
My job as the CEO was also to put in place a robust process to ensure that Lehman complied with all of its obligations to make accurate public disclosures. I had hundreds of people in the internal audit, finance, risk management and legal functions to ensure that we did, in fact, comply with all of our obligations.
Part of that process was E&Y’s role in auditing our financial statements and reviewing our quarterly and annual SEC filings. Each year, E&Y issued formal opinions that Lehman’s audited financial statements were fairly presented in accordance with GAAP, and they were.
We also had in place a rigorous certification process that was carried out in advance of every annual and quarterly SEC filing. That bottom-up process involved hundreds of people who had first-hand knowledge of the firm’s day-to-day business and the responsibility to review for accuracy and compliance the firm’s SEC disclosures before they were filed.
Before we made any annual or quarterly filing, the key people who were involved in this process signed certifications confirming that, to their knowledge, the filing did not contain any untrue statement of a material fact or any material omission and that it fairly presented Lehman’s financial position.
Our certification process culminated, every quarter, with a mandatory, allhands, in-person meeting, which was chaired by Lehman’s Chief Legal Officer. In addition to me, that meeting was attended by the firm’s President, Chief Financial Officer, Financial Controller, Executive Committee members, business heads, the principal internal audit, finance and risk managers, legal counsel and our outside auditors.
After we had reviewed the draft annual or quarterly filing in detail, the Chief Legal Officer and I would each ask everyone present to speak up if there was anything in the document that caused them concern, or if anything had been omitted that they thought should be included. Attendees were also told that they should speak separately with the Chief Legal Officer if they had an issue that they did not want to raise at the meeting. To my knowledge, no one ever, at any of those meetings, raised any issue about Repo 105 transactions.
I relied on this certification process because it showed that those with granular knowledge believed the SEC filings were complete and accurate. I never signed an SEC filing unless it was first approved by the Chief Legal Officer. Mr. Chairman, I thank you for allowing me to speak on these issues and I will be pleased to answer any questions this Committee may have.
Dick Fuld has a big date with the House Financial Services Committee tomorrow and he’s going to say that he knew absolutely nada about Repo 105 until that
Ctrl + F – replace E&Y with any of the Big 4. From personal experience in 2017 PwC’ SoCal PCS (audit) fired 17 staff without prior notice. This included first year associates as well as new managers.
Unfortunately, not every where EY is awesome. Having worked I. Different offices including in Canada , the firm here has been doing poor. Prime reason being, they have incompetent leaders who cannot even prepare a near good business plan for themselves, forget clients. They have nurtured yes bosses and fired those who question status quo. I’d not regret not being there anymore !
I was laid off suddenly without notice, without a rebuttal, without a reason on November 15, 2008. I never forget bec6I worked there for 11 years and they kept lower performers in the Finance dept. I was called into an office on Wednesday and told I was being let.go and the decision was made and nothing I would say can change it. That day they let go of several people in different locations with the same reason, NONE!!!
Why as a major company would you layoff employees that weren’t on PIP and keep the poor proformers. I used to work for a major 500 company in their accounting firm for 47 years. I have seen where they layoff and the higher pay that have paid the price working their way up. Some of the employees had worked due diligence on major buys, and weeks away from home and years of service only to be let go for cheaper pay. I had always heard your company was family oriented but if you layoffs or not done fairly then that can’t be true.
> Why as a major company would you layoff
> employees that weren’t on PIP and keep the poor [sic] proformers
You don’t.
But that has been a recurring theme in these nonsensical EY articles for several weeks now.
On what basis do you claim these articles are nonsensical? Maybe you are one of the Managers or even higher in the EY hierarchy and see only one side of the coin? I have been working at EY for only over a year (I will not write in which country even) and I can already see the huge irregularities here.
On our unity they also laid off a few good employees for virtually no reason. Instead, they left people (at least five) absolutely incompetent, without basic knowledge and skills. Not only that, these people do not even intend or wish to develop in any way, which they show without scruples. And they don’t have to and they will be doing like that always. Do you know why? Because all these people are good friends of the director of our department. And they will benefit from her protection to the end. She is also a terrible expert in the industry in which she holds such a high position – she knows nothing about it while she has been working for about 20 years !!! And the more everybody knows that. But who cares? Only really good workers but they can’t do anything because of all this relations in EY.
How is it possible in such a “good” company? !!!!!!
I add something more – EY should be punished by goverments wherever such situations as described in this article have happened. But they got away with many scandals with the audit and they will probably get away with the current one.
So is there any penalty for such a company? Probably not and they know about it so they will continue this all. And all we can say is that it is disgusting!
If its a SHE then all courtesy Diversity promotion existence bonus all due to Compliance of Gender ratio.
>> On what basis do you claim these articles are nonsensical? Maybe you are one of the Managers or even higher in the EY hierarchy and see only one side of the coin? I have been working at EY for only over a year (I will not write in which country even) and I can already see the huge irregularities here >>
I have worked for EY for more than 5 years and this is a recurring pattern in EY, even in Asia. EY used to be a much better place, a family-oriented company, but it has turned into a place where favouritism has become the most important weapon to surviving in the firm. The better performers are counselled out; whereas people on PIP (performance improvement program) keeps their job if they are friends with the partners, or lovers of the partners or of the same skin colour with certain S. Asian partners.
The team left is then non-competent, making lots of mistakes during client engagement and then the blame game would start, pointing to the person least protected by the least powerful partner.
I see the EY 4s and 5s are here now to defend their shitty performance.
> Maybe you are one of the Managers
Nope… but it sure looks like the EY 4s and 5s are here now to defend their poor performance. LOL
> they also laid off a few good
> employees for virtually no reason
Which is completely acceptable in a right to work system. If you have a problem with that, suggest you unionize.
> Instead, they left people (at least five) absolutely
> incompetent, without basic knowledge and skills
There is so much wrong with this statement:
1. What kind of culture exists at this firm where everyone else knows everyone else’s performance/feedback. That information is supposed to be confidential. Not fodder for gossips such as yourself.
2. Companies do not make money by keeping their poor performers in favor of pushing their skilled people out.
I would guess it comes down to money. They can pay the people they keep on PIP less than the people they have decided to cut. Also saving money on projected future raises. Stupid plan, but probably makes sense to a short sighted money focused management.
Your “proformance” probably wasn’t as good as you thought.
Sorry it came as a shock to you.
I don’t think we should be bullying and laughing at those who lost their jobs, especially during this period. This definitely has nothing to do with performance. When people are terminated, the only reason that HR can give is “performance issues” shifting the blame to the terminated people themselves, to avoid attracting potential legal issues.
The real reason why they were terminated is most likely due to the losses and economic downturn as a result of the pandemic.
Well, EY does it “nicely”. That’s what EY claims it is strong at. Not necessarily honestly. Trying to have that expectation of honesty will only create frustrations. Accept it, please.
Are you on the Wirecard account? You trust a firm that is not honest to provide/audit those financial numbers?
Apparently grammar and coherently written sentences are not needed to be accountants.
Not just the Big 4. Popular companies like Siegfried are doing the same thing. No one is safe!
I was with EY for almost 30 years and layoffs were always part of the business. Underperforming business lines or change of strategy were the main reasons for layoffs. Whether you were a PIP or a decent performer, the only ones that may have been kept on were the super performers. I was in the National Office that tracked all these changes. It’s not personal, it’s business.
As one of the people laid off, I do not think many people are taking it personally. It is a business and times are tough and if there is not enough work for everyone than people have to be cut, totally understand that. But the way it is being framed is frankly bullshit. Telling people who have never once been told they were underperforming and frankly had good reviews and feedback that they are being fired the same day you tell them they are severely underperforming is just a transparent way of going about this, and it really is a disservice to people who spent a lot of their time working extremely hard for the firm. Just be honest is all anyone is asking for.
not a transparent*
Does EY not have the right to let go of anyone at any time for any reason? They owe you an explanation? Who are you exactly?
They have every right to as it is at-will employment. That does not mean that they should be let off the hook for not having the simple decency of being honest with the people let go. A lot of the people in this situation have spent multiple years working long hours for the firm and have performed up to expectation. You are right, the firm can rid of whoever they want, whenever they want. But in my opinion, they still owe people an honest and straightforward explanation of why it is happening.
I’M SANTA CLAUS. AND YOU?
In most right to work states they actually don’t have to have a reason.
EY advisory/consulting will continue to be a plodding mess as long as the People team is led by folks who don’t client face or understand how the BD or delivery processes work. The issues don’t fall far from there
This should have been signed “previous PWC”
employee as well!!
This is what PWC is also doing in 2020.
PwC totally does this too and seems to target the few remaining individuals on their 50s who have somehow survived 20 to 30 years in the firm only to be lied to and fired. Disgusting…zero loyalty to those who sacrificed and killed themselves for the firm over the years.
Welcome to public accounting. They always lay off existing staff to make room for newer, less expensive recent college graduates. Didn’t they tell you about this at your university? In the 1980s they were quite upfront about it – at new firm orientation they told us 1 out of 10 of you will become partners, the other 9 will be gone.
Even worst, having closed the year with profits, EY reduced their employee’s salary in 15%
EY has been laying off all year, especially employees over 35. It’s an international firm. Once they got word of coronavirus, they brought out the chainsaw.
EY is terrible. All around worst of the Big 4. I know from experience and many other feel the same.
EY has extremely poor leadership and they lack any sort of integrity.
The same is the case with Deloitte, employees with appreciation mails from superiors were fired citing performance issues.
This is an old trick. It happened to me. My client showered praises on my work and my manager said, I give you 3 rating if you leave now or will give you 2 if you want to stay. Also it was also clearly told to me that I am not fit for the consulting industry. It happened in 2008 and none of the partners even received my call then.
EY again, what the hell is going on. I happen to work closely with an EY partner by then I was a junior staff. What I went through was hell that I would not imagine of. However no matter how long you stay, you acquire a lifetime experience
After reading the article/email, I can personally relate to the pains of the employees who would have been dishonesty and falsely laid off from EY.
I have had the same experience while I was working for Credit Union Australia(CUA). I was made redundant on poor performance grounds even though I wasn’t under any PIP and was receiving excellent feedback from my C level stakeholders. The actual reason which I got to know later was that there was a organisational change at the C level with a new CEO being hired wanted to show profits, cut costs and what best way to do so was fire hard working top performing employees. I had to work hard to get the actual truth behind the lay-offs else we would have been under the impression that i was made redundant for performance reasons.
I hope justice is served to all those impacted and they get all the answers that they are looking for. This is becoming a trend and what we all need is to fight for our rights and not allow any dishonest management to lead any organisation. Its time for #bigchange
I was let go from Deloitte US Consulting after 7 years with the firm. The reason cited was “unprecedented times due to COVID-19” and not performance.
There are very few new projects and a lot of the on-going ones went on hold. The writing was on the wall.
These kind of politics are not only wid u r company. I m working in one of the world’s largest bank. Inorder to get promotion either one needs to fuck or get themselves fucked. precedent CEO left after working for 18 months. Just imagine how sluttish my company become
When I taught accounting at Texas, it was no secret that the Big 8, then Big 4 routinely burned out the new staff with excessive overtime demands and out of town assignments. Candidates were told that few would become partners and achieve job security. Yet many flocked to the interviews and took the job offers. The fact that EY would lie about the performance of its professional staff comes as no surprise whatsoever. It’s literally a “come to Jesus” moment. Without commitment to divine principles, the firm will fail. Already it is crumbling. Those forced out should thank God that they’re out and settle down at a local CPA firm where they are much more likely to be appreciated and respected.
The problem isn’t the layoffs, the problem is transparency. EY is telling people it is only doing “performance-based separations,” which is complete B.S. Just be honest and admit you are bleeding money due to Covid.
And yet the plan is to be carbon neutral by the end of 2020 aka buying carbon credits
The problem is that they’re aren’t bleeding money due to COVID and yet continue to lie to their staff. I thought Kelly Grier was different, but she is not. Just the same old sly snakes as what we had in the past. Such a big disappointment! Out of here inc
A key premise in the article is entirely incorrect: not all those with performance issues are on a PIP. Any senior person who has worked at EY knows this, and I know from my extended of experience at PwC before joining EY that the same is true at that firm. Performance feedback is based primarily on regular feedback – at least quarterly, though the firm encourages it be more of an ongoing dialog rather than a quarterly event. PIPs are done at the discretion of the managers involved, based on the facts and circumstances.
I would guess it comes down to money. They can pay the people they keep on PIP less than the people they have decided to cut. Also saving money on projected future raises. Stupid plan, but probably makes sense to a short sighted money focused management.
Why don’t public accountants unionize? i’ve always felt it was ripe for the opportunity. The pay at the bottom is crap, and nearly everyone senior or lower is pretty dissatisfied with the system
PwC did the same thing in 2008 and it did not turn out well for them. As soon as the recession people left in droves. I was one of those people. I was a senior manager and felt responsible for my people and we were not even included in the decision making process of who was let go. I actually was once of the first to leave and then the mass exodus happened.