America's fourth-largest investment bank said Chief Financial Officer Erin Callan and Chief Operating Officer Joseph Gregory have been removed from their positions, days after the investment bank announced a $3 billion quarterly loss.
Investors were shaken after the company disclosed Monday it needed $6 billion of fresh capital to offset that loss, its first since going public in 1994.
There has been a steady stream of market speculation that big customers might flee Lehman on concerns about the investment bank's health.
Those fears were compounded by the near-collapse of Bear Stearns under the weight of similar rumors last March. The Federal Reserve later stepped in to negotiate the investment bank's sale to JPMorgan Chase & Co.
Since March, Callan had been taking on an increasingly more prominent profile as the face of Lehman during the credit crisis. She regularly met with analysts and appeared at investor conferences to talk up the company.
On Monday, Callan again waved the flag - telling analysts on a telephone call that Lehman's books were in order and that the fresh dose of capital would allow traders to pursue new opportunities. But her pep talk failed and shares began to plummet toward a record low.
The lack of confidence in Lehman's leadership has been hanging over the company for weeks, and it was unclear if the management upheaval will be enough to satisfy critics. The company has been under intense pressure of late, particularly from short seller David Einhorn of Greenlight Capital, who has been an outspoken critic of the firm's financial health and its public disclosures.
Callan and Gregory join a long list of executives who have lost their job since global banks and brokerages began writing down nearly $300 billion of bad investments stemming from bad bets on mortgage-backed securities.
Others who have lost their jobs include Merrill Lynch & Co. CEO Stanley O'Neal, Citigroup Inc. CEO Charles Prince, and Morgan Stanley co-President Zoe Cruz.
Callan will remain with Lehman in its investment banking division, where she previously ran a group that catered to hedge funds before taking the CFO spot last September. Gregory, who has been with Lehman for more than two decades, will also remain with the firm in an undetermined position.
Herbert McDade, 48, will succeed Gregory. He was previously the global head of the company's equities division, a position he has held since 2005. Ian Lowitt, 44, the current co-chief administrative officer, will become Lehman's new CFO.
A spokesman for Lehman would not comment on the changes to Lehman's top ranks.
However, Chief Executive Richard Fuld said in a statement that removing Gregory from the COO job was "one of the most difficult decisions either of us has ever had to make." Fuld was unavailable for comment.