What It Takes: Lessons in the Pursuit of Excellence

by Stephen A. Schwarzman

Shortly afterward, on March 16, JPMorgan, under government orders, agreed to buy Bear Stearns. Now all eyes were on Lehman, wondering if it would be next. Dick was looking for a buyer as the deepening crisis in mortgages made his task ever more difficult. And despite the way he joked about his improbable ascent at Lehman, he had a strong, sentimental attachment to the firm. He struggled to accept how little it was now worth. In early August, Dick told me that out of his $675 billion of assets, around $25 billion was linked to bad real estate loans. The remaining $650 billion was healthy and making plenty of money for the firm. So why not separate the two? I suggested. Call the $650 billion “Old Lehman” and let it carry on, uncontaminated by the real estate book. Then move the $25 billion pool of assets into a new firm, Lehman Real Estate, and give it enough capital to survive the cycle. It might take five years, but real estate would come back. It always does. Shareholders would still own 100 percent of the assets in both firms, but their risks and rewards would be decoupled to take account of what was happening to real estate. The government would likely have no objection if this split lifted some of the uncertainty Lehman was inflicting on the markets. Dick liked the idea and asked if Blackstone would buy a couple of billion dollars’ worth of Old Lehman if he executed the split. With the appropriate diligence, I said yes. But our discussions were proceeding slowly. Worry...