Lehman’s Erin Callan: From Spotlight to Footnote

The most visible face at the struggling investment bank finds herself vulnerable and is replaced as CFO, along with president Joseph Gregory.

Suddenly, Erin Callan is out as chief financial officer of Lehman Brothers — only a few months after becoming Lehman’s main voice in dealing with a raft of troubles, including a very public sparring match with hedge fund activist David Einhorn.

Callan is being replaced by Ian Lowitt, currently co-chief administrative office at the struggling investment bank. He will join the firm’s executive committee, according to a Lehman Brothers statement. Callan will remain with the company and rejoin the investment bank unit.

In addition, Lehman said that Herbert H. (Bart) McDade III will succeed Joseph Gregory as president and chief operating officer.

“Bart, who has been my partner for 25 years and has proven himself to be the Firm’s best operator, is the right individual to take on this responsibility and lead the firm to the next level,” said Richard S. Fuld Jr., Lehman Brothers’ chairman and chief executive officer, in a press release. “His experience in both fixed income and equities capital markets will benefit the firm, especially during these challenging times.”

Fuld did not comment on the CFO change.

Callan’s profile had risen to near-rock-star status of late as she fended off criticism by Einhorn, founder of Greenlight Capital. He is short on Lehman’s stock and recently morphed from a reclusive hedge fund manager to a media-savvy specialist. He challenged Callan to be more forthright about the investment banking giant’s balance sheet risks and how the firm values its assets.

A glowing story about her in the Wall Street Journal on May 17 called her “a galvanizing force at Lehman and a finance chief who topples much of the conventional wisdom about CFOs.” That “wisdom” appeared to be that CFOs are staid, media-slow, and male. The Journal described the 42-year-old as the highest-ranking woman on Wall Street, and an analyst quoted by the paper described Callan as “going out on a limb to provide more transparency in Lehman’s earnings, business, and strategy.”

With Callan herself now toppled, Einhorn declined to comment to CFO.com about the Lehman changes, through a spokeswoman at his outside public relations agency.

Lowitt, the new CFO, has been Lehman’s executive vice president and co-chief administrative officer since October 2006. In that role he has been responsible for the global oversight of corporate real estate, expense and sourcing services, finance, operations, productivity and process improvement, risk management, and technology.

Before that Lowitt was chief administrative officer of Lehman Brothers Europe. He has also served as global treasurer and global head of tax, and chairman of Lehman Brothers Bank FSB, the firm’s Delaware-based savings bank.

Earlier this week, Lehman announced a $6 billion public offering of common and preferred stock. Lehman priced at $28 a share the $4 billion offering of 143 million common shares — a price more than 13 percent below the closing price for the shares on Friday.

However, on Wednesday the stock further sank, to $23.75, and opened further down when trading resumed Thursday morning.

The $6 billion in new financing was in addition to $8 billion Lehman had previously raised since February. Lehman said proceeds from the offerings will be used for general corporate purposes.

Callan, a tax lawyer, joined Lehman Brothers in 1995 and had served as CFO and executive vice president since December 2007. Although she did not have a strong finance background, she had been widely credited for her frankness and her commitment to transparency.

She has spent most of her time at Lehman in the investment banking division, where she once headed the firm’s global hedge fund coverage group.

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