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[HRC Daily File] June 15, 1994 Lehman Brothers
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6/15/94 Lehman Bro.s
PHOTOCOPY
PRESERVATION
06/10/94 14:17
LEHMAN BROTHERS -> 512024562239
NO.920 P021
Investment Management Company
Total Assets ($m)
J.P. Morgan
$ 88,686.0
Neuberger & Berman
24.966.0
Oppenheimer Mgmt.
3,211.0
Pell Rudman & Co.
1.112.9
Pierson Cap. Mgmt.
300.0
Princeton Bank & Tr.
2,174.6
Prudential Asset Mgmt.
50,227.0
Putnam Co.
64,697.0
RCM Cap. Mgmt.
23,810.0
RD Hill Ass.
329.0
Rosenblum Silverman & Sutton
208.7
Sanford Berstein & Co.
18,522.7
Scudder, Stevens & Clark
76,887.6
J&W Selgiman
11,373.0
Shawmut National
12,000.0
Soundshore Mgmt.
775.3
State Street Bank
5,499.0
State Street Res. & Mgmt.
17,338.0
Tom Johnson Inv.
1,467.5
T. Rowe Price
7,365.0
Trust Co. of the West
34,699.0
U.S. Trust/Boston
2,900.0
U.S. Trust/Ca.
1,357.0
U.S. Trust/Tx.
560.0
U.S. Trust/N.Y.
25,355.0
Union Trust
2,100.0
Vaughan, Nelson
1,300.0
W.P. Stewart
4,156.3
Wachovia Inv. Mgmt.
16,147.0
05/17/94
09:44
FRED FRAENKEL + 512024562317
NO. 091
D05
LEHMAN BROTHERS
Health Care Reform Conference
"Changes In The Health Care Industry Driven By Managed Care"
TO BE HELD AT THE
STOUFFER MAYFLOWER HOTEL
June 14-15, 1994
Contact: Fred Frankel
nes File File Fune 15
NAME:
(212) 576-5061
COMPANY:
ADDRESS:
CITY:
STATE:
ZIP:
PHONE:
Please check the following:
I will attend the Health Care Meeting on Tuesday, June 14.
I will be attending lunch on Tuesday, June 14.
I will be attending dinner on Tuesday, June 14
I will attend the Health Care Meeting on Wednesday, June 15.
I will be attending lunch on Wednesday, June 15
Please fax or mail this form to Tina Horwath no later than May 23rd.
Please return this form to:
Tina Horwath (fax) 1-212-528-9778
Lehman Brothers
Three World Financial Center, 14th Floor
New York, NY. 10285
05/17/94
09:44
FRED FRAENKEL + 512024562317
NO. 091
904
Wednesday, June 15, 1994
7:30-8:45 a.m.: Breakfast
Keynote Breakfast Speaker:
NEWT GINGRICH, HOUSE MINORITY WHIP
9:00-10:15 a.m.: Panel Discussion:
INTRODUCTION AND PAYMENT FOR NEW MEDICAL TECHNOLOGY IN A
MANAGED CARE ENVIRONMENT
Genentech: Richard B. Brewer, Senior Vice President
Medtronic: Art Collins, COO
Quantum Health Resources: Douglas Stickney, CEO
Aetna Health Plans: William T. McGivney, Ph.D., Vice President
10:30-11:45 a.m.: Panel Discussion:
GENERIC DRUGS: STRATEGIES FOR SUCCESS IN AN INCREASINGLY
COMPETITIVE MARKET
Copley: Jane C.I. Hirsh, Chairman and CEO
Mylan: Milan Puskar, Chairman, CEO and President
Teva (Lemmon Company): William Fletcher, President
Noon-2 p.m.: Lunch:
KEYNOTE LUNCH SPEAKER
(1-2pm. Time)
BRUCE C. VLADECK, PH.D., THE ADMINISTRATOR, HEALTH CARE FINANCING
ADMINISTRATION (Directs Medicare and Medicaid Programs)
LEHMAN BROTHERS ANALYSTS DISCUSS INVESTMENT STRATEGIES AS
MANAGED CARE GROWS
2:15-3:30 p.m.: Panel Discussion:
PHARMACY BENEFITS MANAGEMENT: INNOVATIVE TECHNIQUES TO
CONTROL DRUG UTILIZATION AND COSTS
Value Health: Robert E. Patricelli, Chairman and CEO
PCS, Division of McKesson: Steven I. Geringer, President, PCS
Express Scripts: Barrett Toan, President and CEO
05/17/94
09:44
FRED FRAENKEL + 512024562317
NO. 091
903
LEHMAN BROTHERS
Health Care Reform Conference
"Changes In The Health Care Industry Driven By Managed Care"
Tuesday, June 14, 1994
8:30-9:15 a.m.: Registration Continental Breakfast
9:15-10:30 a.m.: Panel Discussion:
CUTTING COSTS IN THE 90s: HOSPITAL STRATEGIES
Columbia/HCA Healthcare Group: Rick Scott, CEO and President
Community Health Systems: Richard E. Ragsdale, Chairman
HealthTrust, Inc.: R. Clayton McWhorter, Chairman, President and CEO
10:30-11:45 a.m.: Panel Discussion:
CUTTING COSTS IN THE 90s: HOSPITAL SUPPLIER STRATEGIES
Owens & Minor: Robert E. Anderson III, Executive Vice President
U.S. Surgical: Leon Hirsch, Chairman and CEO
Vital Signs: Terence Wall, President and CEO
Noon-2:00 p.m.: Lunch
Keynote Lunch Speaker.
PATRICK GRIFFIN, DIRECTOR OF THE WHITE HOUSE OFFICE OF
LEGISLATIVE AFFAIRS
2:15-3:30 p.m.: Panel Discussion:
HMOs' NEW MEDICAL COST CONTROL INITIATIVES AND THE IMPACT ON
HEALTH CARE DELIVERY
Healthsource: Norman C. Payson, M.D., President and CEO
United HealthCare: William McGuire, M.D., Chairman and CEO
U.S. Healthcare: Leonard Abramson, Chairman and Principal Executive Officer
3:45- 5:00 p.m.: Panel Discussion:
MANAGED CARE PHYSICIANS' INFLUENCE ON CHANGING MEDICAL
PRACTICE
Coastal Healthcare Group: Steven Scott, CEO
Pacific Physician Services: Gary Groves, CEO
PhyCor: Joseph Hutts, CEO
6:30-8:00 p.m.: Dinner
Keynote Dinner Speaker:
STAN GREENBERG, POLLSTER TO THE PRESIDENT AND ADVISOR TO THE
DEMOCRATIC NATIONAL COMMITTEE
05/17/94
09:43
FRED FRAENKEL + 512024562317
NO. 091
002
Dear Institutional Client:
We are pleased to invite you to the Lehman Brothers Health Care Conference, "Changes In The
Health Care Industry Driven By Managed Care," to be held at the Stouffer Mayflower Hotel in
Washington, D.C. on June 14-15.
This conference will be looking broadly at the changes in the industry driven by managed care.
Among the keynote speakers will be Newt Gingrich, House Minority Whip.
The meeting will be organized to include:
Keynote speakers from Congress and The Administration representing various views;
Topical panels of senior executives of health care companies. These will explore the strategies
for facing the major challenges in the changes U.S. health care system;
Opportunities to follow up with company managements and other speakers at their designated
tables;
Take-home investment ideas from Lehman Research analysts.
Wc have reserved a block of rooms at the Stouffer Mayflower Hotel, at a special rate of $195.00
for A single/double room. If you need accommodations, please call the Stouffer Mayflower directly
at 202-347-3000 by May 23, and be sure to mention the Lehman Brothers Health Care
Conference.
To RSVP for the conference, please send in the enclosed registration form. Please watch this
spot for any changes to agenda and listing of additional Congressional/Administration speakers.
We look forward to seeing you in June!
New York Lehman Brothers Health Care Analysts
Equity:
Jerry Brimeyer
David Danar
Ed Kroll
Teena Lerner
Rich Silver
Mimi Willard
Joel Zimmerman
Fixed Income:
Susan Taylor
Washington Lehman Brothers Political Analyst
Tom Gallagher
05/20/94 16:56
LEHMAN BROTHERS -> 512024566208
NO.443 P001
File June
15
Facsimile Cover Sheet
ues
To: Julie Hopper
Company: White House Scheduling Office
Phone: 202-456-7560
Fax: 202-456-2316
From: Teena Lerner
Company: Lehman Brothers
Phone: 212-526-4410
Fax: 212-619-9435
Date: 05/20/94
Pages including this
cover page:
34
Comments: Thank you so much for your help in coordinating Mrs.
Clinton's appearance at Lehman Brothers' Second Annual Health Care
Reform Conference on June 15. Please convey to the First Lady our
deepest appreciation for accepting this invitation. We think she will find our
group to be a well-informed, interested and interesting audience.
I am group head of the health care equity research group at Lehman
Brothers, and one of the organizers of the conference. Fred Fraenkel, with
whom you spoke to schedule this event, is the head of the equity research
department (and my boss). I will take over the responsibility of working
with you (and/or anyone else you refer me to) on the details of this
presentation. Rather than hassling you, 1 will wait to hear from your office
when you are ready to hear more about the nature of the meeting, the
audience, any preferences we might have about content of Mrs. Clinton's
remarks, etc. In the meantime, I enclose some background information on
the conference and a copy of the final schedule.
Many thanks.
Teena Lerner Jule
LEHMAN BROTHERS
TEENA L LERNER CPA. PhD
MANAGING DIRECTOR
MEMORANDUM
ind. BOTH H or companies who
what
TO:
Julie Hopper
>clibated
FROM:
Teena
people who money investablet acc'ts
want to
Lerner
DATE:
May 20, 1994
RE:
Lehman Conference June 15
This is Lehman Brothers' second annual Washington DC health care conference. We organize
these conferences for the benefit of our institutional investor client base, to educate them on
changes expected in the health care system so that they can incorporate that information into
investment decisions Speakers at the conference include CEO-level representatives of 22 major
companies involved in all sectors of the health care industry, as well as Washington-based speakers
representing different legislative agendas and viewpoints.
Last year's conference was a huge success. Ira Magaziner was the kevnote speaker and most of the
key legislators on health care reform (ie, Cooper Daschle, Rockcfeller, Durenberger) also gave
presentations. The meeting attracted top health care investment decision-makers from the equity
a 3 fixed income sides of the largest institutional pension and money management firms in the
country Fidelity, Alliance, Capital Guardian, Morgan Bank Trust Company of the West,
he andy sts
Putnam, Dreyfuss, etc. The authorize was also extremely knowledgeable about the ramifications of hemalt
the various options in health care reform, which led to very lively and productive exchanges with
Mr. Magaziner and with each of the invited members of the Hill All told, the audience consisted
$ specific
of over 200 institutional investors. representing $1.7 trillion of assets under management, plus
stocks $
investmeaterior-ten
serior-level representatives of 23 presenting corporations and industry groups
bands
Obmpanies
relation
We believe that the health care investment community is an important constituency for the Clinton
administration to interact with on the topic of health care reform. It is a highly influential
tohe
constituency whose reaction (seen in the stock and bond tables every day) to this legislation will be
key We believe that Mrs. Clinton can use our conference as a forum to reach out to this important
group, and we are pleased that she has chosen to do so. We think it would be an interesting and
stimulating meeting for the First Lady It offers Mrs. Clinton an opportunity to present the
Administration's case to these decision-makers directly, rather than through the filter of the media
or Wall Street analysts, and offers her an opportunity to react first-hand to their viewpoints.
Having attended a dinner in which the First Lady addressed an economic development group, I
know that our audience will have a somewhat different interest and agenda than most of the
business and industry groups that Mrs. Clinton has previously addressed.
Enclosed is a copy of the final agenda.
LEHMAN BROTHERS INC
0111 526 212
10285 1400 AN YORK MAN
3 WORLD FINANCIAL CENTER
LEHMAN BROTHERS
LEHMAN BROTHERS INC.
MANAGING DIRECTOR
TEENA L. LERNER
LEHMAN BROTHERS
LEHMAN BROTHERS INC.
3 WORLD FINANCIAL CENTER NEW YORK. NY 10285-1400
Mrs. Hillary Rodham Clinton
Office of the First Lady
The White House
Old Executive Building, Rm. 100
1600 Pennsylvania Avenue
Washington, DC 20500
LEHMAN BROTHERS
Scheduline
TEENA L. LERNER, CFA, Ph.D.
MANAGING DIRECTOR
May 20, 1994
to Patti: FYI
fr: wendy
Mrs. Hillary Rodham Clinton
Office of the First Lady
The White House
Old Executive Building, Room 100
1600 Pennsylvania Avenue
Washington, DC 20500
Dear Mrs. Clinton:
On behalf of Lehman Brothers, I'd like to express our appreciation for your
acceptance of our invitation to speak at the Second Annual Lehman Brothers
Health Care Reform Conference in Washington, DC on June 15. We will have in
attendance senior health care investment decision makers from the leading
investment institutions in the country. This is an aud ence whose actions
significantly impact the stock and bond markets on a aily and long term basis.
They are most interested in hearing your comments and having the opportunity to
interact with you in person. I believe that you, too, will find this to be a
stimulating and interesting forum.
We look forward to greeting you on the 15th. In the meantime, we are pleased to
work with the appropriate members of your staff to do whatever we can to ensure
that this is a smooth and productive meeting for all parties involved.
Thank you once again.
Sincerely,
LevDer
Teena L. Lerner
LEHMAN BROTHERS INC
3 WORLD FINANCIAL CENTER NEW YORK. NY 10265 1400 4410
06/10/94 09:29
LEHMAN BROTHERS
512024562239
NO.902 P001
LEHMAN BROTHERS
Jerry Brimeyer + Pharmaceuticals
David Danar . Biotechnology
Ed Kroll - Medical Services & Supply
Teena Lerner - Biotechnology
Richard Silver - Pharmaceuticals
Mimi Willard - Medical Services & Supply
Joel Zimmerman . Medical Technology
Angeli Kolhatkar " Jr. Analyst to Teena Lerner & Joel Zimmerman
Scon Kyreakakis - Jr. Analyst to Jerry Brimeyer
Jennie Stephenson - Jr. Analyst to Mimi Willard
Sally Yanchus - Jr. Analyst to Joel Zimmerman
HEALTII CARE GROUP
EQUITY RESEARCH DEPARTMENT
212-
Fax Number: (212) 619-9435
Backup
619-6893
526-4410
619-6871
FAX COVER SHEET
Date: June 10,1994
To:
Liz Boyer
From:
Tuna Lernes
Co./Dept.:
Phone:
Phone:
202-456-2131
# of Pages Incl. Cover
15
Fax #:
200-456-2239
Messages:
Elise Abrutyn - Research Assistant to Ed Kroll & Rick Silver
Linda Napoli - Administrative/Research Assistant to T. Lame & David Danar
Naomi Polius . Adminutrative/Research Assistant to Joel Zummerman
Alice Usher - Executive Secretary to Mimi Willard & Jennie Stephenson
Sally Rosario - Administrative/Research Assistant to Jary Brimeyer
06/10/94 09:30
LEHMAN BROTHERS - 512024562239
NO.902 P002
MEMORANDUM
TO:
Julie Hopper
FROM:
Teena Lerner
DATE:
May 20, 1994
RE:
Lehman Conference June 15
This is Lehman Brothers' second annual Washington, DC health care conference. We organize
these conferences for the benefit of our institutional investor client base, to educate them on
changes expected in the health care system so that they can incorporate that information into
investment decisions. Speakers at the conference include CEO-level representatives of 22 major
companies involved in all sectors of the health care industry, as well as Washington-based speakers
representing different legislative agendas and viewpoints.
Last year's conference was a huge success. Ira Magaziner was the keynote speaker and most of the
kcy logislators on health care reform (ie, Cooper, Daschle, Rockefeller, Durenberger) also gave
presentations. The meeting attracted top health care investment decision-makers from the equity
and fixed income sides of the largest institutional pension and money management firms in the
country: Fidelity, Alliance, Capital Guardian. Morgan Bank. Trust Company of the West,
Putnam, Dreyfuss, etc. The audience was also extremely knowledgeable about the ramifications of
the various options in health care reform, which led to very lively and productive exchanges with
Mr. Magaziner and with each of the invited members of the Hill All told, the audience consisted
of over 200 institutional investors, representing $1.7 trillion of assets under management, plus
senior-level representatives of 23 presenting corporations and industry groups.
We believe that the health care investment community is an important constituency for the Clinton
administration to interact with on the topic of health care reform. It is a highly influential
constituency whose reaction (seen in the stock and bond tables every day) to this legislation will be
key. We believe that Mrs. Clinton can use our conference as a forum to reach out to this important
group, and we are pleased that she has choscn to do so. We think it would be an interesting and
stimulating meeting for the First Lady. It offers Mrs. Clinton an opportunity to present the
Administration's case to these decision-makers directly, rather than through the filter of the media
or Wall Street analysts, and offers her an opportunity to react first-hand to their viewpoints.
Having attended a dinner in which the First Lady addressed an economic development group, I
know that our audience will have a somewhat different interest and agenda than most of the
business and industry groups that Mrs. Clinton has previously addressed.
Enclosed is a copy of the final agenda.
06/10/94 09:30
LEHMAN BROTHERS + 512024562239
NO.902 P003
LEHMAN BROTHERS
Health Care Reform Conference
"Changes In The Health Care Industry Driven By Managed
Care"
TO BE HELD AT THE
STOUFFER MAYFLOWER HOTEL
WASHINGTON, D.C.
JUNE 14-15, 1994
Tuesday, June 14, 1994
8:30-9:15 a.m.: Registration - Continental Breakfast
9:15-10:30 a.m.: Panel Discussion:
CUTTING COSTS IN THE 90s: HOSPITAL STRATEGIES
Columbia/HCA Healthcare Group: Rick Scott, CEO and President
Community Health Systems: Richard E. Ragsdale, Chairman
HealthTrust, Inc.: R Clayton McWhorter, Chairman, President and CEO
10:30-11:45 a.m.: Panel Discussion:
CUTTING COSTS IN THE 90s: HOSPITAL SUPPLIER STRATEGIES
Owens & Minor: Robert E. Anderson III, Executive Vice President
U.S. Surgical: Leon Hirsch, Chairman and CEO
Vital Signs: Terence Wall, President and CEO
Noon-2:00 p.m.: Lunch
Keynote Lunch Speaker:
PATRICK GRIFFIN, DIRECTOR OF THE WHITE HOUSE OFFICE OF LEGISLATIVE
AFFAIRS
2:15-3:30 p.m.: Panel Discussion:
HMOs' NEW MEDICAL COST CONTROL INITIATIVES AND THE IMPACT ON HEALTH
CARE DELIVERY
Healthsource: Norman C. Payson, M.D., President and CEO
United HealthCare: William McGuire, M.D., Chairman and CEO
U.S. Healthcare: Leonard Abramson, Chairman and Principal Executive Officer
3.45- 5:00 p.m.: Panel Discussion:
MANAGED CARE PHYSICIANS' INFLUENCE ON CHANGING MEDICAL PRACTICE
06/10/94 09:30
LEHMAN BROTHERS -> 512024562239
NO.902 P004
Coastal Healthcare Group: Steven Scott. CEO
Mullikin Management Enterprises: John S. McDonald, CEO
PhyCor: Joseph Hutts. CEO
6:30-8:00 p.m.: Dinner
Keynote Dinner Speaker:
STAN GREENBERG, POLLSTER TO THE PRESIDENT AND ADVISOR TO THE
DEMOCRATIC NATIONAL COMMITTEE
06/10/94 09:30
LEHMAN BROTHERS -> 512024562239
NO. 902 P005
Wednesday, June 15, 1994
7:30-9:15 a.m.: Breakfast
Keynote Breakfast Speakers:
8:00-8:45 a.m. REP. NEWT GINGRICH (R-Ga) HOUSE MINORITY WHIP
8:45-9:15 a.m. SEN. BOB KERRY (D.-Neb.)
9:30-10:45 a.m.: Panel Discussion:
INTRODUCTION AND PAYMENT FOR NEW MEDICAL TECHNOLOGY IN A MANAGED
CARE ENVIRONMENT
Aetna Health Plans: William T. McGivney, Ph.D., Vice President
Genentech: Richard R Brewer, Senior Vice President
Medtronic: Art Collins, COO
Quantum Health Resources: Douglas Stickney CEO
11:00 a.m.-12:15 p.m.: Panel Discussion:
GENERIC DRUGS: STRATEGIES FOR SUCCESS IN AN INCREASINGLY COMPETITIVE
MARKET
Copley: Jane C.I. Hirsh, Chairman and CEO
Mylan: Milan Puskar, Chairman, CEO and President
Teva (Lemmon Company): William Fletcher, President
12:30-2:45 p.m..: Lunch:
Keynote Lunch Speakers
1:00 p.m. THE FIRST LADY, HILLARY RODIIAM CLINTON
2:00 p.m. BRUCE C. VLADECK, PH.D., ADMINISTRATOR, HEALTH CARE FINANCING
ADMINISTRATION (Directs Medicare and Medicaid Programs)
3:00-4:15 p.m.: Panel Discussion:
PHARMACY BENEFITS MANAGEMENT: INNOVATIVE TECHNIQUES TO CONTROL
DRUG UTILIZATION AND COSTS
Value Health: Robert E. Patricelli, Chairman and CEO
PCS, Division of McKesson: Steven I. Geringer, President, PCS
Express Scripts: Barrett Toan, President and CEO
06/10/94 09:30
LEHMAN BROTHERS + 512024562239
NO.902 P006
LEHMAN BROTHERS
Health Care Reform Conference
"Changes In The Health Care Industry Driven By Managed Carc"
TO BE HELD AT THE
STOUFFER MAYFLOWER HOTEL, WASHINGTON, D.C.
June 14-15, 1994
NAME:
COMPANY:
ADDRESS:
CITY:
STATE:
ZIP:
PHONE:
FAX:
Lehman Brothers Relationship:
Institutional Client;
Corporate Client;
Other
.
Please check the following:
I will attend the Health Care Meeting on Tuesday, June 14.
I will be attending lunch on Tuesday, June 14.
I will be attending dinner on Tuesday, June 14
I will attend the Health Care Meeting on Wednesday, June 15.
I will be attending lunch on Wednesday, June 15
Please fax or mail this form to Tina Horwath no later than May 23rd.
For hotel reservations, please call the Stouffer Mayflower directly at (202) 347-3000 and mention the
Lehman Brothers Conference.
Please COPY and FAX this form to:
Tina Horwath (fax) 1-212-528-9778
Lehman Brothers
Three World Financial Center, 14th Floor
New York. N.Y. 10285
06/10/94 14:17
LEHMAN BROTHERS - 512024562239
NO.920 P019
ASSETS UNDER MANAGEMENT
Companies Represented
Lehman Brothers' Health Care Reform Conference May 5-6
Investment Management Company
Total Assets ($m)
Alliance Capital Mgmt.
$ 63,826.0
ASB Capital Mgmt.
10.371.1
Atlanta Sosnoff Cap.
1,932.0
Bankers Trust
200.0
Baring America Asset Mgmt.
1.538.7
Berger Associates
850.0
Brinson Partners
26,842.0
Brundage. Story & Rose
3.741.7
Capital Guardian
27,332.7
Capital Research
76,530.7
Chancellor Cap. Mgmt.
26,134.0
Cigna Cap.
57,704.0
Clover Cap. Mgmt.
810.0
Concord Inv. Co.
180.0
Conning & Co.
8,100.0
Equitable Capital Mgmt.
35,095.5
Essex Inv. Mgmt.
2,400.0
Fidelity Mgmt. & Research
190,474.5
Fiduciary Trust. Int'l
24,306.0
Fleming Cap. Mgmt.
486.9
Fortsmann Leff Ass.
3,496.7
Friess Ass.
2.417.1
Froley Revy Inv. Co.
597.0
Frontier Cap.
1,344.0
Furman Selz Cap.
3,639.0
Continental Asset Mgmt.
13,559.0
Cooke Bieler
5,521.6
06/10/94 14:17
LEHMAN BROTHERS + 512024562239
NO.520 P022
Investment Management Company
Total Assets ($m)
Weiss Peck Greer
$ 11.091.0
Weiss Peck Greer Farber
11,091.0
Wellington Management
66,952.0
Wellington Mgmt. Co.
66,952.0
Wood. Struthers & Winthrop
1,310.0
TOTAL ASSET UNDER MANAGEMENT
$1,662,517.8
MT
LEHMAN BROTHERS
MIMI WILLARD
SENIOR VICE PRESIDENT
April 5, 1993
Mr. Ira Magaziner
Senior Advisor for Policy Development
The White House
1600 Pennsylvania Avenue
Washington, D.C. 20500
Dear Mr. Magaziner:
We are looking forward to your talk at the Lehman Brothers' healthcare reform conference at the
Madison Hotel on May 5-6. As you are aware, we have assigned you a keynote slot at the
luncheon on May 5th.
I am writing to update you regarding the status of that conference. Specifically, we have had an
outstanding response from our client base, and expect to have a turnout near or at the 300 person
capacity of our room at the Madison Hotel. We expect that the financial institutions represented at
the conference will collectively comprise the majority of money under management in the nation.
This should be an excellent opportunity for you to access the financial and healthcare communities
regardless of whether the Administration's proposals have been formally unveiled.
We are still in the process of firming up a couple of our keynote speakers, but do have firm
acceptances from Jim Cooper and David Durenberger, as well as senior executives representing
various healthcare corporations and interest groups.
Please see the attached agenda.
The recent announcement regarding the divestiture of Shearson Division's retail operations to
Smith Barney actually increases the impact of this coming conference. That is because the
Lehman Brothers' research department now serves three constituencies: Lehman Brothers'
Institutional Sales, Shearson Lehman Brothers' retail sales, and Smith Barney retail sales. Thus,
we expect this to be an even more important forum for you to put forward the Administration's
views on healthcare reform.
If I can be of any further assistance to you or you have any questions regarding this conference,
please call me.
I look forward to seeing you in May.
Yours sincerely,
'nlimi C. Willard
Mimi C. Willard
LEHMAN BROTHERS DIVISION
SHEARSON LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK, NY 10285-1400 212 298 4033
LEHMAN BROTHERS
MIMI WILLARD
SENIOR VICE PRESIDENT
March 2, 1993
Mr. Ira Magaziner
Senior Advisor for Policy Development
The Old Executive Building
The White House
1600 Pennsylvania Avenue
Washington, D.C. 20500
Dear Mr. Magaziner:
I was pleased to learn in speaking with Marjorie Tarmey of your office today that you have agreed to
speak at the Lehman Brothers Healthcare Reform conference in Washington on May 5. We have
assigned you that day's keynote lunch slot, noon - 2:00 p.m. This will be at the Madison Hotel, 15th
and M Streets.
My prior letters to you described the scope and character of this conference. Ms. Tarmey has asked
me, in order to better prepare you for this meeting, to provide further details, which are as follows.
We expect to have at least 200 attendees. The majority of these will be representatives of major
institutional investment firms (such as Fidelity/Mutual Funds, J.P. Morgan, Alliance Capital, various
major banks, major insurance companies, etc.); collectively, these institutions are responsible. for
investing a significant portion of the nation's equity capital. In addition, we expect to have in
attendance senior executives from a number of major healthcare and insurance companies; and senior
representatives of key interest groups (e.g. physicians and hospitals). We believe that this group of
participants represents an important constituency for the administration to access once its healthcare
reform proposal is unveiled.
I would suggest that you have 30-45 minutes of prepared comments and then be available to answer
some questions from the floor. You should expect that this audience will be highly informed with
respect to the issues surrounding healthcare reform.
LEHMAN BROTHERS DIVISION
SHEARSON LEHMAN BROTHERS INC AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK, NY 10285-1400 212 298 4033
LEHMAN BROTHERS
- 2 -
I am enclosing for your information our preliminary agenda, so that you can understand the broader
scope of this conference. There are still about four unfilled keynote slots, most of which we anticipate
will be given to key members of Congress who will be central in the healthcare reform debate. Those
invitations have been extended and seem to be progressing favorably; on the last page of the agenda
you will see a list of the other keynote speakers whom we hope to have with us.
I look forward to seeing you in May. If I can be of any help in the interim, please phone.
Yours sincerely,
Wimi C. Willard
Mimi C. Willard
LEHMAN BROTHERS DIVISION
SHEARSON LEHMAN BROTHERS INC. AN AMERICAN EXPRESS COMPANY
AMERICAN EXPRESS TOWER WORLD FINANCIAL CENTER NEW YORK, NY 10285-1400 212 298 3070
LEHMAN BROTHERS
HEALTH CARE REFORM CONFERENCE: THE VIEW FROM 100 DAYS
MAY 5-6, 1993
THE MADISON HOTEL
15th and M Streets
WASHINGTON, D.C.
202-862-1600
PRELIMINARY SCHEDULE OF EVENTS
When we send out the invitation, only list confirmed speakers and include
the comment below:
All speakers listed below are confirmed; other invitations are pending.
May 5
9:30AM: Registration.
9:50AM: Welcoming comments.
10:00AM: Keynote Slot (see last page for outstanding invitations).
10:45AM: Keynote Slot (see last page for outstanding invitations).
Noon: Keynote Lunch. Ira Magaziner: President Clinton's Senior
Advisor for Policy Development.
2PM: The Outlook for Health Insurance Reform. Panel discussion
moderated by Mimi Willard and Gloria Vogel. Invited panel discussants
include:
Health Insurance Industry Association: Pres. Wm. Gradison (invited
by Helene Rayder, with Tom Gallagher doing follow through).
Group Health Association of America: (Invited by Ed Kroll. They
have accepted; unclear who speaker is)
Cigna Government Affairs: H. Michael, Assistant VP/Federal
Affairs. Confirmed.
Alternate: Sal Curiale, NY Commisssioner of Insurance (to be invited
by Gloria Vogel)
3:00PM: Break
3:15PM: Impact of Health Care Reform on Health Insurers. Panel
discussion moderated by Gloria Vogel. Panel discussants are confirmed
and include:
Aetna Group Health Operations: James W. McLane, Assistant Vice
President, Federal Affairs. Confirmed.
Cigna Employee Benefits: Lawrence P. English, President Employee
Benefits Division). Confirmed.
Metropolitan Life: John D. Moynihan, Executive Vice President,
Group Health. Confirmed.
4:15PM: HMOs in a Changing Regulatory and Competitive Environment;
Impact of Health Care Reform.
U.S. HealthCare: David Simon, corporate counsel. Confirmed. (But
are seeking higher level speaker); or will get United HealthCare.
Foundation Health: Dan Crowley, Chairman and CEO or Steve Tough,
President. Confirmed.
PacifiCare. Terry Hartshorn, Chairman elect, or Alan Hoops,
President and CEO elect. Confirmed.
5:20-5:35PM: Lehman Brothers Take Home Investment Thinking on HMOs
and Insurance
5:30-8:00PM: Keynote Dinner.
May 6
7:30AM: Keynote Breakfast. Senator David Pryor, (D) Arkansas. 85%
confirmed. Tom G. will firm up.
8:45AM: Break
9:00AM: Health Care Providers: Reform Measures that they Could
Support and How they Will Adapt to the New Environment. Panel
discussion moderated by Ed Kroll. Invited participants include (Ed is
responsible for all these invitations except Gaelen):
American College of Physicians: Howard Shapiro, Director of Public
Policy. Confirmed.
American Hospital Association: Peter Wilson, Vice President of
Regulatory Affairs and State Policy Issues. Confirmed.
Galen: Carl Pollard, Chairman and CEO. (Pending. as per Ed
Kroll) on this through David Jones. Humana)
Vencor: Bruce Lunsford. CEO. Confirmed.
May 6, continued
10:00AM: The Increasing Role of Pharmacy Benefits Management. Panel
discussion moderated by Jerry Brimeyer (and Mimi Willard??). Invited
discussants include:
Glaxo: Stephen Stefano, VP Managed Care (invited by Jerry Brimeyer
and Scott K.).
United HealthCare's Diversified Pharmaceutical Division. Hank
Blissenbach, President. Confirmed.
ValueRx division of Value Health: Barry Smith, President
(pending. Mimi Willard invited them; they may RSVP to Joel)
11:15AM: Break
11:30AM: Pharmaceutical Companies' Strategies for Dealing with
Pharmacy Benefit Management Panel discussion moderated by Jerry
Brimeyer. Invited discussants include:
Pharmaco division of Applied Bioscience International: Dr. Charles
Defsche, President
Marion Merrell Dow: John Harrington, Director Managed Care.
Invited by Rich Silver.
Amgen. Gordon Binder, Chairman and CEO? Likely
12:30PM: Keynote Lunch. Mark Shields, syndicated columnist.
Confirmed
2:20PM: Importance of Data Analysis and Outcomes Research in the New
Health Care System; Medical Technology, Part of the Problem or part
of the Solution? Panel discussion to be moderated by Joel Zimmerman
and Scott Fithian. Invited discussants include:
Health Insurance Association of America: John Cova. Consultant
to HIAA on Medical Technology Assessment and former Director of
Technology Assessment.
Health Industry Manufacturers Association. Ted Manne, EVP.
Confirmed.
Dan Draglin; Towers Perin, former Prudential National Medical
director, currently a (advocate of centralized technology
assessment).
3:40PM: Winners and Losers Under Health Care Reform. Some take-home
investment ideas from Lehman Research analysts:
Pharmaceuticals: Jerry Brimeyer. Rich Silver. Luan Noble
Biotechnology: Teena Lerner and David Danar
Medical Technology: Joel Zimmerman and Scott Fithian
Insurance: Gloria Vogel
Pending Keynote invitees
We expect to fill at least three more keynote slots. Below is a
list of those who would be the first choices to fill them. All of
those listed below have been extended formal invitations and
should respond within the next week or so.
Rep. Jim Cooper, D. Tenn. (invited by Gallagher)
Sen. George Mitchell, D. Me. (invited by Gallagher)
Donna Shalala, Secretary of Health and Human Services.
Rep. Pete Stark, D. Cal.
Tom Elkin, Calpers, is interested in attending. Do we have a slot
for him?
Copyright 1994 The Bond Buyer, Inc.
GENE collection of basics highights
The Bond Buyer
April 15, 1994, Friday
Stich
SECTION: Q: AND A:; Pg. 5
LENGTH: 1767 words
HEADLINE: 'Giving Management Tools' to Succeed in Local Health Care Markets
WITH STEPHEN CLAIBORN, MANAGING DIRECTOR AND CHRISTOPHER
CONLEY, SENIOR VICE PRESIDENT AT LEHMAN BROTHERS.
BYLINE: April Hattori
BODY:
The health care industry is rapidly evolving, notwithstanding the political
wrangling in Washington, D.C. over proposed reforms.
While Congress considers a variety of health care reform bills, ranging from a
Canadian-style, single-payer plan to the Clinton managed competition plan, the
health care industry is bracing for a future that will reward the lean and mean.
Competition for managed care contracts with employee groups is forcing many
health care institutions to streamline their operations or join forces with other
facilities to provide a broad spectrum of care.
Changes in the health care industry could reduce overall hospital revenues, placing
some of the $100 billion of outstanding health care bonds at risk, according to rating
agency officials and market participants. Nearly half of those bonds are insured.
Meanwhile, issues at both the federal and state levels also threaten to impede
health care bond issuance and the speed of reforms. The issues include a limitation
on the number of advance refundings allowed for hospital debt and anti-trust laws
that could hinder the merging of health care institutions.
Recently, two Lehman Brothers health care bond officials spoke with reporter April
Hattori about the changes in the health care industry and their impact on the credit
markets.
Stephen A. Claiborn is national director of Lehman's health care group, and
Christopher Conley is a senior vice president at the firm.
Claiborn is also chairman of the Health Care Financing Group, a 40 member
organization that includes investment banking firms and bond insurers. The group
was set up about 15 years ago to provide a forum for discussing significant changes
in the health care industry.
Q: How much health care bond issuance can we expect in the coming years? And
what kind of projects will the bonds finance?
Conley: We expect health care bond issuance to be somewhere between $15 billion
and $20 billion annually for the foreseeable future. And we think that financing will
be driven by three needs. First, we have to keep existing structures up to date with
renovations. Second, we have to finance new modalities of care, including primary
care, that are lower cost, reach further into community, or serve under-served areas.
Third, we will continue to see consolidation-related financing as more hospitals
merge and need to refinance their debt to effect consolidation. It's important to note
that the last two needs - the new modalities of care and consolidation - are really
what health care reform is all about - providing new kinds of care and becoming
more efficient.
Q: What kind of changes are you seeing in health care financings?
Conley: Taxable debt has always been an option, and we may have to rely on it a lot
more in the future. For those borrowers that have exceeded their $150 million
limitation for non-hospital bonds for outpatient facilities, like ambulatory care
centers, taxable debt is the only option. For joint venture arrangements with
physicians or developers, particularly for medical office buildings, in which there is
clearly some private use of the facility, taxable debt is very good vehicle. If the
tax-exempt status of hospitals is taken away or access to the tax-exempt debt market
is curtailed, we think there will be more reliance on taxable debt. In our experience,
too, the most attractive vehicle to the borrower for those purposes is some form of
floating-rate taxable debt that can be hedged with an interest rate swap or interest
rate cap.
Q: What is your approach to health care financing?
Conley: More and more, our approach to financing starts with management. The
forces that are affecting the health care industry nationally are cost and access, which
are management issues. They usually show up at the local level on the desk of the
chief executive officers and chief financial officers. So Lehman Brothers looks at how
management approaches four major areas: their vision in the marketplace, financial
management, network negotiation, and medical staff relationships.
The first thing we look at is whether management has a strong sense of where they
fit in their local marketplace. Are they the low-cost provider? Are they the dominant
provider?
Second, we look at financial management, starting with all the traditional measures
of financial health on the income statement and the balance sheet. And if the
information is available, we also try to focus on the institution's cost position
compared to its competitors and its ability to enter into managed-care contracts with
providers. We want to know whether they're making money or losing money on (the
managed-care contracts.)
Third, we look at management's ability to position their institution in networks that
may be forming in their marketplace. Here, we may focus on their affiliations with
other institutions, the number of managed-care contracts they may have, their
dependence on any one contract, and the overall penetration of managed care in their
marketplace.
And finally, we look at how they're handling the management of the changing
medical staff relationship. For example, are they employing physicians or are they
contracting with large physician organizations?
Basically, what we try to do is figure out what management's needs are in their
market, driven by what is happening with reform and (we try to) deliver the kinds of
tools to solve them.
Q: What needs to be done to eliminate or curtail the likelihood of bond defaults in
the future?
Conley: The default rate for tax-exempt bonds in the acute-care sector historically has
been very low - less than 1% of all bonds. And we don't see any change in the
foreseeable future. Only a third of all hospitals have access to the market. Again, we
think management is the key to this. Most of these managers have seen continuous
and large changes in the industry for a long time - for at least the last 10 years. In a
sense, what is happening now is more of the same. The chief financial officers, chief
executive officers, and the boards that have good handles on the four things we
talked about probably have the best chance of getting through this round of changes.
But we do think the regulators can help management in a couple of ways. First,
they can help by making any changes gradual so local management and their
communities have time to adjust. And second, we think that they can remove some
of the obstacles that prevent management from moving in the direction that
everybody seems to want to go.
Q: What are some of those obstacles?
Claiborn: What I think we're talking about here is giving management the tools to get
done what needs to be done in their local markets. One key issue is the anti-trust
issue, which we can talk about separately. And there has been some positive
movement there. There are three other areas which would help hospital managers
rationalize health care in their community. First is the repeal of the $150 million
limitation on non hospital bonds outstanding for any 501(c)(3) (organization). This
would help encourage the increasing emphasis on primary and preventive care
facilities, which is where the changes in health care are taking them. Secondly,
relaxing the restriction on advance refunding would help hospitals that are merging
to consolidate their operations. And thirdly, the change-in-use rules should be relaxed
to permit unexpected shifts from a qualified to a non-qualified use caused by health
care reform. For example, if a for-profit operator wants to buy a non-profit facility,
financed by tax-exempt bonds, the current safe harbor regulations require that a
facility be in use for five years since the last tax-exempt bond issue. And with the
speed of health care reform, five years is forever.
Ö
What can we expect in the area of anti-trust issues on the state and federal levels?
Claiborn: Many of the new ventures that would increase efficiency may be blocked
by current anti-trust provisions. Two of the health care bills, however, that have been
introduced - the Chafee-Thomas bill and Nickles Stearns bill - both have fairly
identical provisions that recognize the need for anti-trust revision to accommodate
changes in the marketplace. These bills would create a number of mandatory safe
harbors and allow for other safe harbors to be established going forward to help
make the changes that are already taking place. We think these efforts will be
successful.
Q: How does the merging of for-profit institutions with nonprofits affect the
outstanding debt of the merged institution and the tax-exempt market?
Conley: Consolidation-related financing is driving some portion of the tax exempt
market initially. The most likely candidates for that are the hospitals owned by
physician partnerships or those owned by some of the proprietary chains. For
nonprofits that want to be acquired by the for profit chains, we're going to need
some relaxation of the change-in-use provision that (Claiborn) talked about. But we're
probably going to end up seeing some increase in taxable financing to accomplish
some of these changes.
Q: What is your best guess as to the pace of federal health care reforms?
Claiborn: We think there is tremendous pressure to get something done this year.
Nonetheless, regardless of what comes out of Washington, health care reform is
happening anyway. Managed care is growing and hospitals are merging with one
another and with insurance companies. And there is greater interest in new types of
physician organizations and primary and preventive care facilities. The (health care)
market is already focusing on issues of cost and access. Smart managers in
communities all over the country are responding to the market. So I think it's
happening almost regardless of Washington.
Q: What role do derivatives play in health care financings?
Claiborn: Hospitals have been near the forefront if not at the forefront in terms of
utilizing derivative product structures. They tend to have a freer hand because most
of them are not government entities, per se. They have a freer hand in using newer
instruments that save money. We continue to use our more sophisticated derivative
products in the health care area to a very large success, and I definitely think that is
going to continue. Without giving any particular names or anything, there are
probably 15 deals we've done so far this year in the health care market. Probably
about three-quarters of them make good use of derivative product structures.
GRAPHIC: includes photos: Claiborn, Conley
LANGUAGE: ENGLISH
LOAD-DATE-MDC: April 15, 1994
Copyright 1994 The Atlanta Constitution
The Atlanta Journal and Constitution
June 1, 1994
SECTION: BUSINESS; Section E; Page 5
LENGTH: 285 words
HEADLINE: IN THE NEWS American Express completes spinoff of Lehman
Brothers to shareholders
BYLINE: BLOOMBERG BUSINESS NEWS
BODY:
New York - Lehman Brothers Holdings Inc., for the second time in its 144-year
history, became an independent company as American Express Co. completed the $
1.77 billion spinoff of the securities firm to shareholders.
American Express, a travel and financial services company, said it distributed its
98.2 million common shares in Lehman through a tax-free dividend to shareholders.
American Express holders of record May 20 received one Lehman share for each
five of their shares.
Lehman shares were actively traded Tuesday, with nearly 2.8 million sharescha
nging hands. The stock fell 12 1/2 cents to $ 18.
Investors who received Lehman shares in the spinoff said they're holding on, at
least for the time being. The stock is trading at a 27 percent discount to its $ 24.52
book value, well below a brokerage industry standard of 15 percent to 25 percent
above book value.
"It's not our style" to sell stocks that may be inexpensive, said Douglas Eby, a
portfolio manager at Robert E. Torray & Co., which owns about 200,000 Lehman
shares. Eby said the firm may consider selling its Lehman stock if it rises above
book value.
Funds that only buy shares of companies in the Standard & Poor's 500 index are
expected to sell their Lehman holdings because the stock isn't part of the index.
These funds owned about 8 percent to 9 percent of American Express stock in early
May, Lehman said, citing analysts' estimates.
Lehman shares have been trading on the New York Stock Exchange on
awhen-issued basis since May 2.
American Express stock traded ex-dividend Tuesday, or as though the dividend
had been paid. American Express rose $ 1.62 1/2to $ 27.62 1/2 today, after
accounting for the spinoff.
LANGUAGE: ENGLISH
LOAD-DATE-MDC June 2, 1994
Copyright 1994 Investment Dealers' Digest, Inc.
Investment Dealers' Digest
Investment Dealers' Digest, Inc. makes no warranties, express or implied,
including those of merchantability or fitness for a particular purpose.
January 31, 1994
SECTION: FIRMS & EXCHANGES; Pg. 8
LENGTH: 687 words
HEADLINE: Unanswered questions linger about Lehman Brothers spinoff; Bonuses
of stock and cash are doled out
BYLINE: Ron Cooper, Tom Pratt
BODY:
After years of considering every other alternative imaginable, American Express
Co. decided last week to buy its way out of the securities business. It announced
that it would inject more than $ 1 billion in new capital into its Lehman Brothers
which were only beginning to be communicated to employees at press time last
week. Finally, few hints were forthcoming about the makeup of Lehman's new and
independent board, or about its unfilled chairman's post.
Terms of the divestiture call for American Express to buy $ 890 million of new
Lehman common shares, which will be spun off in a special dividend to American
Express shareholders. Amex will also buy $ 200 million of preferred shares, which it
will keep. Lehman employees will purchase $ 160 million of new shares, or less
than 10% of the common of the newly-independent firm.
Asked why American Express didn't go the IPO route, one source explained: "The
rating agencies basically indicated that much more capital was required than would
have been the case if you simply did a 20% IPO, and spun off the rest." In 1993,
Sears, Roebuck & Co. did a 20% IPO of Dean Witter Discover, then spun off the other
80% tax-free. The 20% benchmark can't be exceeded for tax reasons, the source
noted, and 20% of Lehman's current net tangible equity of about $ 1.7 billion is far
short of the $ 1 subsidiary, and spin it off to American Express shareholders during
the second quarter.
The move is a welcome one for Lehman Brothers, which had wanted out of the
10-year relationship every bit as billion the ratings agencies told Lehman they
required for a stand-alone single-A rating.
Conversely, it would have taken years for Lehman to earn its way into $ 1 billion
in new equity, and American Express would risk missing the current high valuation
for securities firms.
"I think [Amex chairman Harvey] Golub looked around and saw that things are
never going to be better than they are now," said a source close to Lehman.
"Lehman had a good earnings year, there is no press yet about the Shearson
Lehman limited partnerships, certain things have been settled, its underwriting
ranking is okay, and the equity markets couldn't be more benign."
The bonus issue
When the spinoff was announced, there was considerable suspicion at Lehman
that there would be a direct link between 1993 bonuses -- which weren't announced
until later in the week - and the $ 160 million in employee purchases of new
common. The situation still wasn't clear at press time, but initial, scanty reports of
bonuses indicated that much as American Express wanted it to go. But welcome as
the announcement was, it left several issues unresolved.
It wasn't entirely clear why American Express didn't go the separate
initial-public-offering route, or why its executives erred so badly last August when
they estimated fresh capital of only $ 500 million would bring Lehman a
stand-alone single-A rating. It also wasn't clear how much of the $ 160 million of
Lehman stock slated for employee purchase would be tied to 1993 bonuses --
individuals were pleased, and that the feared tie-in wasn't an issue.
About $ 60 million of the stock purchases reportedly are linked to 1993 bonuses,
although the related portion of the bonus pool is larger - $ 100 million. The
difference is taxes, for which employees will receive the other $ 40 million in cash.
"None of the bonuses are more than 25% stock - and purchases of stock are
completely voluntary," said a Lehman official. "The 25% is a cap, and in many
cases it was lower; not many people hit that." Plans for the other $ 100 million in
employee stock purchases "are still being worked on," the official added.
As for the new board, American Express said in its announcement that it will not
be represented, and that there won't be any directors in common between the firms.
Still, sources said, Golub will want to have an influence on the board, and Lehman
president and CEO Richard Fuld will likely nominate several Lehman executives
loyal to him and managing partner Christopher Pettit. Lehman does not have a
chairman.
LANGUAGE: ENGLISH
LOAD-DATE-MDC: February 11, 1994
Copyright 1994 Times Newspapers Limited
The Times
January 25, 1994, Tuesday
SECTION: Business
LENGTH: 168 words
HEADLINE: American Express to float Lehman Brothers
BODY:
AMERICAN Express is to float off Lehman Brothers, its investment bankingarm,
in the next six months. The flotation will be through a tax-free special dividend to
Amex shareholders consisting of free Lehman shares. American Express, the net
income of which more than tripled, to $1.478 billion, last year, will first pump more
than $1 billion into Lehman to strengthen its balance sheet and gain a credit rating
that will enable it to deal in government and other securities. Amex sold the bulk of
Shearson Lehman to Primerica, the American financial conglomerate, almost a year
ago.
After the Lehman flotation, Amex will hold no voting shares; 90 per centof these
will go to the public and 10 per cent to Lehman executives. The float includes the
investment bank's London and other overseas operations, the underwriting, trading
and research operations of which have been among its most profitable. Amex bought
Lehman Brothers, founded in 1850, in 1984 and later took it private.
LANGUAGE: ENGLISH
LOAD-DATE-MDC: January 26, 1994
Copyright 1993 Investment Dealers' Digest, Inc.
Investment Dealers' Digest
Investment Dealers' Digest, Inc. makes no warranties, express or implied,
including those of merchantability or fitness for a particular purpose.
November 8, 1993
SECTION: COVER STORY; Pg. 16
LENGTH: 4563 words
HEADLINE: Almost Alone;
President Richard Fuld Jr. outlines the plans for Lehman Brothers now that
Shearson is gone
BYLINE: By Ron Cooper
BODY:
Lehman Brothers is almost independent -- again.
Since a near self-immolation and sale to Shearson/American Express in 1984,
Lehman Brothers partners have privately longed for the old days when the Lehman
name carried as much cachet as Goldman, Sachs & Co. On August 1 of this year,
they got their second chance. The Shearson retail arm was sold to Primerica Corp.'s
Smith Barney securities unit, and Lehman Brothers found itself alone in the market
-- minus the reassuring presence of Shearson's roughly 8,500 retail brokers.
The divorce has served to intensify the Wall Street buzzing about Lehman
Brothers, to multiply some of the questions. What happens without the mighty
Shearson distribution link? Will Lehman hire a slew of new brokers, or will it
downsize and attempt the high-net-worth route? Will it try to be all things to all
people, or will it specialize? How can Lehman Brothers grow when its president
publicly told analysts last August that it intends to whack out $ 200 million of costs?
What about its long-awaited initial public offering? Its secretive private partnership?
And finally, what about its history of turbulence at the highest management levels
- especially timely since one of its top three executives J. Comilson Hill, was ousted
only seven months ago by American Express Co. chief executive Harvey Golub?
Stepping in to answer these and other questions is Richard Fuld Jr., Lehman's
president (the firm has no chairman or chief executive). A 21-year Lehman veteran,
Fuld is widely respected on the Street and considered one of its great traders.
With the exit of Hill. Fuld has become Mr. Outside at Lehman. Mr. Inside is
Christopher Pettit, Lehman's managing partner who, like Fuld, came up through
Lehman's capital markets/trading side. Pettit, who has reported to and worked
alongside Fuld for 17 years, runs day-to-day operations for all of Lehman. The
relationship between the two is described by one top associate as "very complex."
As Fuld notes, the news for Lehman in its first three months of
quasi-independence - it is still owned by American Express - is positive. Through
the first nine months of 1993, Lehman ranked third among all debt and equity
underwriters worldwide, the same spot it occupied last year. It ranked third in US
investment grade debt also a repeat performance - and third in common stock, up
from fourth in the year-earlier period. In the Eurobond league tables, it climbed to
12th from 19th.
The earnings front has been looking up, too. In the third quarter, Lehman posted
a net income of $ 112 million versus a year-earlier loss of $ 52 million. For the nine
months, net for Lehman Brothers alone was $ 262 million. In the year earlier
period, the combined Shearson Lehman Brothers lost $ 19 million.
Still, Lehman watchers contend that the firm can't possibly float an initial public
offering without several quarters of earnings history quite independent of the old
Shearson Lehman Brothers. It also needs that history to put to rest suspicious of
accounting games between different units of the old firm.
An IPO would likely suit the purposes of American Express, too. "American
Express has stated publicly that its business going forward is TRS, IDS and American
Express Bank," says one source. "If you look at that carefully, you notice that
Lehman Brothers is not in there."
Whatever his longterm plans for Lehman, Golub, the Amex CEO, seems to be
getting along famously with Fuld at the moment. An Amex-inspired search for an
outsider to be brought into Lehman as chairman and CEO reportedly has been
called off, sources say. Since Golub was personally responsible for ousting Tom Hill,
that act has considerable significance.
Some top insiders are still wary, however, "Golub would cut Dick's legs off in an
instant," says a highly placed Lehman source, "if the marketplace began to feel that
Dick didn't have the vision and ability to implement Lehman's stategy."
Then there is the Lehman partnership, an exclusive and secretive incentive
program resurrected in late 1990 to keep top executives from jumping ship. It isn't
clear what happens to the partnership going forward. It is clear that Lehman
executives are wrestling with an interesting question: should Lehman do its IPO
next year, does a private partnership rightfully belong in a publicly-traded company?
The answer, insiders indicate: probably not.
Investment Dealers' Digest last visited Lehman Brothers headquarters at the
World Financial Center in August 1992, when we did a major story featuring a cover
shot of Fuld. Pettit and Hill. The breakup of that troika seemed a logical place to
start the questioning.
IDD: The last time we were here there were three of you. Now Tom Hill is gone.
How have your duties changed, and how has your working relationship with Chris
Pettit changed?
Fuld: My responsibilities, specifically, have changed. I find today that I'm working
with investment bankers and with clients much more than I ever used to. I'm still
involved in the firm's risk management process and its capital commitments. Chris
and I together work with the Operating Committee on a much more regular basis. I
set the overall strategy for the firm, and together we work on managing the
businesses.
I'm obviously still involved with American Express to a very large degree,
especially at this crucial time in our lives.
It's different, and the days are longer.
IDD: Tom Hill was a life-long investment banker, and now the firm's top executives
are non-bankers. You and Chris Pettit are trading types from the old commercial
paper division. As you are well aware, the whole trading/investment banking
tension has a certain history of Lehman Brothers. Who speaks for investment
bankers now, and how do you assuage their fears that this is becoming a trading
firm?
Fuld: Well, there are really two parts to that. What you're talking about is the
historic tension between investment banking and capital markets. That was
something that we addressed back in 1990, and that is not a factor today.
At the time Tom and I shook hands [and agreed to run the firm together in
September, 1990], we said: there are no more territories. We're not going to run
capital markets and investment banking separately, and come together once or twice
a week and talk about it. What we're going to do is manage the firm along product
lines - fixed income, equity, commodities, which includes foreign exchange, etc.
We don't have that problem of who represents who.
Does investment banking have a place at the table? Absolutely, I count myself
among the people who represent the interests of investment banking. It's been a long
time since I was a trader. I am very much involved in investment banking today,
very much involved with a lot of our clients. But most importantly, at this table
where the Operating Committee sits at least once a week, we have representatives of
investment banking who have equal say as to what goes on with this firm.
This firm is not just fixed-income sales and trading. As a matter of fact, it's much
broader than that. This firm today is about: how do we bring value to the clients?
Our clients are our business.
IDD: You are the point man for the American Express relationship?
Fuld: I am indeed. Harvey Golub (chief executive of American Express) and I are in
fact the Executive Committee for Lehman Brothers Holdings, Inc.
IDD: Why is there no chairman and chief executive of Lehman Brothers?
Fuld: There is no chairman and chief executive at the moment because Harvey has
not gotten to that point. I am president of this company. I am very comfortable
with that, and he is very comfortable with that. Today our relationship is better than
it ever has been.
He has been very supportive. Whenever there is an issue regarding Lehman
Brothers, he is very comfortable in my making that decision. My job at the moment
is to get us to the point where we are strong enough both in terms of earnings and
balance sheet to get a stand-alone single A and A2 from S&P and Moody's. That's
my job.
IDD: A little over a year ago we wrote a cover story on Lehman Brothers that got a
lot of comment. Where did we go right in that story, and where did we go wrong?
Fuld: You spent more time talking about the three of us, and less time talking about
what is, in fact, really Lehman Brothers. And maybe when you spoke to us last,
maybe part of what Lehman Brothers was about was the interaction among the
three of us.
Today though, Chris Petit and I are very comfortable. We have been together for
17 years. It's a wonderful working relationship. Chris basically has responsibility
day-to-day of working with the operating businesses. He and I come together and
talk about strategy, I run risk and positioning. I work with American Express. I
work with overall strategy - where we're going with the firm. I work with the
agencies, and the outside constituencies. There is a lot to do in this firm, and he and
I together have a clear definition of where we are going with it.
I think you spent less time on what is the guts of Lehman Brothers, and hopefully
in this conversion we will talk about business philosophy -- about culture and
chemistry and what really drives the firm today.
IDD: At Lehman, as at Goldman Sachs and Morgan Stanley and perhaps most
firms, there is a sort of tension between homogeneity and independence, between
wanting everyone to pull on the same oar and allowing dissent - even the offensive
kind that sometimes result in new products and new directions for a firm. Some
people outside Lehman say that you are still coming to grips with this tension, that
Lehman at times tips too far in the area of homogeneity and does not allow enough
dissent.
Fuld: Homogeneity as far as its people, or its thinking?
IDD: Homogeneity as far as demanding that people hue to a certain behavior is here.
We had talked about this in the last article as it related to the rise of the fixed-income
division here. Some people on the banking side especially were afraid of all the
fixed-income guys.
How do you deal with this?
Fuld: Well there are a couple of pieces to that. When you run a firm of 9,200 people,
you must constantly address the question of how do you keep everybody together.
Our culture at Lehman Brothers today is very much one firm, unlike the Lehman
Brothers of old.
That doesn't mean, though, that everybody has to look the same, speak the same,
think the same, dress the same. We are not into that at all. As a matter of fact we
are very much an electric group.
Teamwork is the balance between discipline and creativity. And how do you
manage the two? How do you make sure that at all times the entire firm is moving
together to focus on the client, to focus on how do we make Lehman Brothers better
everyday? You have to have a management structure, because you can't have 9,200
people raising their hand all the time saying, 'me, me, me.' You have to have an
effective management structure that gives people the opportunity to surface their
ideas while maintaining the foundation for team work.
IDD: When you and Tom Hill took over this firm at the end of 1990, all the different
products had fences around their little area.
Fuld: They very much did.
IDD: And it was your job and it was his job to go in there and take the fences down,
and put everything together. People don't give up their territory willingly, and
subscribe to this one firm, one vision philosophy. It would seem natural to go
overboard in that direction.
Fuld: You know what's interesting? You're right, you can never convert 9,200 people.
But our people were very ready to come together as one firm. It was a lot easier
than we thought it was going to be, and it happened a lot quicker.
Now that doesn't mean that everybody has the message. That doesn't mean that
we don't have to reinforce it occasionally. But I will tell you that for the most part,
the ability to work, together, to bring other areas in without being afraid of what is
the P&L fallout, is much, much greater today.
We used to spend a lot of time on how you allocate a dollar of revenue. Number
one, you never got it right. Number two, it was always non-productive. And number
three, whatever role you came up with or whatever decision you came up with at
that particular time, for that particular dollar on a certain transaction, you set a
precedent for the next one. And if you had to change it, the arguments were worse.
We don't worry about that today. Today we have people focus on what is the
revenue for Lehman Brothers. But in doing that, you clearly shift the responsibility
of understanding what happens in a deal, and how the revenues fall out. So there is
a real emphasis today with our managers on knowing what their people are doing.
IDD: People are very curious about where you are going with this firm. You've been
on your own again for three months now, since Shearson used to Smith Barney.
Where do you want to take this firm in the '90s? What is your vision of this place
five years, ten years down the road?
Fuld: We are very comfortable with our current mix of businesses. I think we have
critical mass in all the core businesses -- about 9.200 people overall. We have begun
to see the return on our investment in swaps/derivatives, foreign exchange, and our
international businesses. That contribution is expected to grow.
I think we're very good in the vanilla businesses of originating and trading
securities, both debt and equity. I expect we will continue to consolidate our market
position in these areas.
The real key for us is how we continue to build our international revenues -- today
about 25% of our total revenues. Over the next couple of years. I would like to see
that number increase to 50%, because that is where the business is going to be.
IDD: Next two years?
Fuld: Two years, maybe three, I would like to see the number increase. If it takes
longer, that's okay, too, as long as we're moving in the right directions.
But it's not just going to be just 50% of today's revenue base, because today's
revenue base is going to go up also.
IDD: Which geographic areas will you focus on, and which product areas?
Fuld: Let me give you the obvious answer: Europe and Asia. I am very pleased by
the strides we have made in Europe in a very short time. Our London business is
strong. We've recently expanded in Frankfurt. We also continue to get mandates in
other countries -- Italy, for instance. We have just been appointed global coordinator
on the privatization of BCI [Banca Commerciale Italiana]. So Europe is very much on
my screen.
And next is Asia. We have a solid operation in Tokyo and in Hong Kong, where
we've been for 25 years. We are also doing business in Korea, Taiwan, the PRC,
Singapore, Malaysia and Indonesia.
Asia is going to be a huge area - a huge platform - for us. There are tremendous
pools of capital being generated, looking to be invested.
And we are configuring ourselves today to take advantage of these new
opportunities. We are making the investments in people, infrastructure and software.
Because if you are going to be truly a global firm, you have got to be able to do any
transaction in any currency, in any country, at any time.
That calls for a huge systems investment. And we are probably now in the third
year of that investment. So far, it's been a wonderful investment. That is the
direction of the business. That's the direction our clients are going. That's the
direction our clients want us to go.
IDD: Third year of that investment? Is this a formal plan that only has a number of
years to run?
Fuld: This is something we basically started at the beginning of 1991 - building our
international presence. We are represented today in 19 different countries. If you
look at Eurobond rankings, a year ago we were 38th, and today we are number 8.
That has taken a real concerned effort. If you look at Lehman's overall rankings --
all debt, all equity, worldwide - Lehman Brothers is number three, from number
eight in 1990.
IDD: You just talked about a "huge systems investment" overseas. How do you make
that investment, when at the same time you've got to whack out $ 200 million in
costs?
Fuld: That's a good question. Making investments in your infrastructure and taking a
disciplined attitude toward costs are not mutually exclusive. In both instances, you
try to make the decision that involves the most efficient allocation of resources.
Lehman Brothers has a base of about 9,200 employees, a number I'mcomfortable
with. And the question is, how do we move those people around from the less
productive businesses to some of the more productive businesses? How do we move
our people throughout the world so they can be most productive? As we refine our
business strategy, we are also going to be taking a hard look at our costs.
I've said that $ 200 million is our goal, and we have got the entire organization
focused on coming up with ways to get there.
We have to rely and count on the more productive businesses, and wind down
some of the less productive. In doing that, we're going to be able to focus on the
areas that need development.
IDD: Do you have office in China?
Fuld: We have a satellite office in China. It's a small one though.
IDD: Will China be a thrust for you?
Fuld: China will clearly be an area of terrific opportunity. I think, for the whole
business.
IDD: Business Week had an article two weeks ago that said Lehman does not plan
to invest in China. Is that true?
Fuld: It depends on how you define the term "invest." We already have an office in
Beijing. We just did the PRC's first Dragon Bond issue. We've got a number of other
mandates, which I cannot discuss. We are nicely positioned there. I am very
comfortable with it.
IDD: The article talked mainly about how different firms like Oppenheimer were
nosing around to identify equity investment possibilities in China.
Fuld: I see - the article discusses investment in Chinese companies. What I'm talking
about is a commitment to increase our presence and expand our franchise. We're
representing clients that are looking to make investments in the country, or establish
joint ventures. We are also representing clients in China that want to raise money to
finance their infrastructure development.
IDD: The last time we were in here, Chris Pettit talked about the strategic/tactical
approach overseas, the mix between product and geographical reporting lines. As
we recall, it meant that for fixed income, for instance, the New York global product
manager would set the policy, the London person would sign off on it, and would
then have the responsibility to carry it out.
Is that still in effect?
Fuld: I think what Chris said was that the New York product person, in conjunction
with the London person, would set policy together. And then the London person
would be responsible for the day-to-day implementation of that policy. That's what
we call matrix management.
You asked earlier about the tension between discipline and creativity. One of the
ways we deal with that is we can agree to disagree. Let's say you represent a
product, and someone else represents London. You have an idea, and he has an
idea, and they are different, 99 times out of 100 you and that person will come to
closure.
If you do not, then instead of having a battle between the two of you, you just
agree to disagree. And then you'll come up to either Chris or me depending on what
the issue is, and we'll make the judgement. It's a lot better than having the tension
either at the Operating Committee level or at the business level below. If it's the
business level below, they go to the Operating Committee member, or members, and
they hands it.
IDD: How often does that actually happen?
Fuld: When Chris and I have to get involved? Very infrequently. But issues are
certainly brought to the attention of Operating Committee members. That's a big
part of their job. Because the firm today -- the 9,200 people in 19 different countries,
the 20,000 transactions, the $ 85 billion balance sheet -- Chris and I cannot run it
alone. We have an 18-member Operating Committee that is busy on these and other
issues all the time.
IDD: This severing of the tie with Smith Barney Shearson in August. You were
expecting to deliver product to them for two years, and all of a sudden the time
period got compressed rather radically. How did that affect you internally, especially
in your brokerage force and your research staff?
Fuld: Well, let me go back a little bit first. When we first began conversations about
how we were going to handle these agreements with Smith Barney, I think they very
much felt that, at least to begin with, they didn't want to be left in a position of
acquiring 8,500 brokers without any product origination capabilities.
But in my conversations with them, I said to them very clearly, 'Guys, once you're
on your own, you are very much going to want to do this yourself as quickly as
possible.' And they said, yes, they knew that, but they'd still like to have the
agreement.
I think as soon as they got into it, they realized the truth of exactly what I said to
them. And I think their hiring of [Robert] Greenhill was clearly indicative of that.
They knew that they had to do their own origination without Lehman Brothers.
They were smart to do that. So when they came to us, we were thrilled. It was a
very easy conversation.
I know it got a lot of noise in the press. Was it earlier than I expected? Yes. Did it
surprise me? Not at all. Were both of us happy about it? Very, because it made it
cleaner and easier.
IDD: You've got how many brokers here? About 675 or 700?
Dick: Domestic and international, there are 660.
IDD: What would you like that figure to be? We had heard 1,000 to 1,200,
somewhere in that area.
Fuld: You know, it's interesting, I think that was one school of thought. There is
another school of thought, though, one that I'm beginning to get very serious about.
Instead of having 1,000 brokers doing $ 1 million apiece, I think it may be better
for us to think about having 500 to 600 brokers doing $2 million apiece. And I think
we have the product today. We have good product. We have the resources. We
really need to focus on the high-net-worth investor. It's certainly something we are
considering.
IDD: That's interesting. How do you go about doubling their productivity?
Fuld: Mostly through training and creating additional products to sell. For the last
eight years, the Lehman brokers were called the Lehman Brothers division of the
Shearson Lehman Brothers retail division. It was very convoluted. They were very
much part of the Shearson Lehman Brothers infrastructure, and really were not
aware of all the products that this Lehman Brothers could bring to them.
I just came back from a four day conference in Phoenix of the firm's top brokers,
Chris was there, and SO were several other Operating Committee members. We spent
time with the brokers. We told them what the philosophy of the firm was. We told
them how important they were to Lehman Brothers, and where they fit in.
IDD: At an analysts luncheon last August, you talked about reducing the cost
structure at Lehman Brothers by $ 200 million. Did you give a time frame for that?
Fuld: I told the analysts we had begun a process of looking at our administrative
costs, at some of the inherited costs from Shearson, and at some of the non-strategic
businesses across the board. We were also going to look at some of our purchased
costs, and some of our variable costs. As I mentioned, our goal is $ 200 million in
savings, and we should start to see a good part of that by the first quarter of 1994.
IDD: Whenever an employee sees a figure like that, it naturally sends a little chill
through your heart. The first thing you think of is head count.
Fuld: That is not the direction we are going in. But, for example, we sold the
Shearson Mortgage Co., which was a non-core business. So, in that respect, those
people left the firm, and our head count was reduced.
Our head count will drop again when some 500 people move to Smith Barney
Shearson over the next few months. So, Lehman Brothers will drop below its
current head count, but it won't be because of our current cost reduction efforts.
IDD: Let's talk about the operations at Lehman Brothers, starting with fixed income.
People say that generally, the vast majority of your profits come from fixed income,
and the real home run hitter in that sector is mortgage-backed securities. True?
Fuld: It's true that I've heard that, I think that is clearly the common view.
The mortgage business has been a very big business for this firm. But I would
certainly never take out one business and say that it is the strongest, or the driving
force, because that is not the case. Lehman Brothers' revenues today are close to $ 4
billion. That can't be the result of one or two or three or four individual products.
Fixed income is strong, no question, but our equity business has been way up, too.
I will say to you that the perception clearly exists that Lehman Brothers is a
fixed-income house. But we cannot be number three worldwide in both equity and
debt by just being strong in fixed income.
IDD: When you look over at the end of 1990, equities was pretty obviously the
business that needed the most work. Where are you in that learning curve? Are you
satisfied with where you are today in equities?
Fuld: A little more than two years ago, I think it was safe to say that the equity
business clearly needed more attention, more resources and more investment than
other areas of the firm. We made those investments. We changed management.
Are we happy? My answer is yes, with qualification. As soon as you say you're
completely content, that means you lay down your guns and you go to sleep. In this
business you can never stop pushing. Because as soon as you stop, everybody else
moves faster.
IDD: The Lehman Brothers partnership that you reinstituted at the end of 1990, do
you keep that going forward?
Fuld: We don't talk about the Lehman Brothers partnership.
IDD: Finally, the question everyone asks about Lehman Brothers: what about your
IPO? How soon could one be done?
Fuld: The answer is that American Express clearly wants Lehman Brothers to be a
stand-alone single A-rated company. And once we are in that position, that will give
American Express the opportunity to work at its three strategic options.
One, they can hold us. Two, they can sell us to another institution. Or three, we
can do some form of public offering. My goal is to get the business to a point where
American Express can consider all its options.
GRAPHIC: Picture 1, Fuld: wants to boost international to 50% from 25% of total
revenues in two years; Picture 2, Pettit: has reported to and worked alongside Fuld
for 17 years; Picture 3, Hill: ran afoul of Amex's Golub last March; Picture 4, Lehman
Brothers Broadgate headquarters in London; Picture 5, Lehman Brothers
fixed-income trading floor at the World Financial Center
LANGUAGE: ENGLISH
LOAD-DATE-MDC November 17, 1993