Longtime Lehman Brothers structured finance co-head Martin Harding is resigning his post in what some market observers are calling a harbinger for further disruptions in the market.

Harding had been at Lehman for more than 10 years, most recently as managing director and co-head of MBS and ABS finance. The resignation is amicable and he is not severing ties completely, as he will continue to work at Lehman on a consulting basis. Sam Tabet will be taking over the majority of Harding's residential mortgage finance duties, while co-head Bill Lighten will oversee all of structured finance. Nelson Soares will continue to head up the ABS unit.

Harding's departure follows close on the heels of the resignation of Atul Bajpai, who worked for 10 years in Lehman's London office. Bajpai recently joined Dresdner Kleinwort Wasserstein as head of debt principal finance in its global debt division.

To some bankers, the recent departures suggest that Lehman, like other top Street dealers in structured finance, may be reaching a crossroads. For many dealers, the benefits of being the top-ranked shop in low-margin businesses like structured finance may no longer be as appealing. As a result, expect more longtime players at a number of dealers to write their resignations in the near future, sources said.

"A lot of the firms most highly-rated on league tables may have a lot of low-margin business, while firms ranked lower are actually making more money," said one observer. "Wall Street is a very different place these days. This is a trend that is percolating."

"Number one is nice, but number one and making money is nicer," said another observer.

End of an era

Harding's resignation marks the end of a long legacy at Lehman Brothers. He and his cohort Lighten have maintained a cohesive, first-rate mortgage business at Lehman for the past decade, outside sources said, managing to stave off any major defections from the department.

Lehman officials said that the post-Harding era would be business as usual for the firm. "Our strategy and focus will be the same [without Harding]," Lighten said. "We have one of the broadest books of business on the Street, and now our structured finance unit includes more component parts. We have a significant presence in ABS, ABCP, the CDO business. The people Martin worked with most closely will step up and take more responsibility now."

Indeed, Lehman remains a leader in the ABS, MBS and CMBS markets According to Thomson Financial Securities Data, Lehman ranked fourth for ABS for the year 2000 (U.S. public and Rule 144A combined), with approximately $30 billion in proceeds. A year earlier, however, the firm ranked No. 2. Additionally, fourth-quarter 2000 had the bank at number 10 for public-only ABS. Similarly, Lehman had a longstanding reign as the top manager for MBS for several years, but got knocked to the second position this past year as the combined CSFB/DLJ took the top slot.

Is there a price for being a top-ranked player in structured finance? Some observers said they have witnessed a growing philosophical divide in many Street firms about how to deal with the business going forward.

As structured finance businesses expand into other sectors - from lending to merchant banking to principal transactions - firms are faced with the challenge of supporting their longstanding clients or allocating resources to new businesses. Because of this, sources say, some firms lose sight of their strategic direction and core values.

"Firms get involved in the businesses as they evolve," said a source, "but sometimes after the business runs its course, the firm runs its course. Then the firm goes into new directions, but sometimes [these directions] are a little far afield of how they used to move and how they used to direction themselves. It's a tough balancing act."

Market sources familiar with Lehman say that the bank may be at such a crossroads, as it and other firms try to determine the most advantageous way to allocate their focus and talent. As structured finance units of banks affiliate themselves with more and more operating companies and initiate new endeavors to expand businesses, it often becomes difficult to determine which directions and clients should receive the lion's share of attention. Sometimes, core businesses run the risk of falling by the wayside.

"There is a difference of opinion about what the future will bring," said a source close to Lehman. "Sometimes firms go into what makes them feel good versus what [they] really do."

In some cases, the decision may be to become more heartless when dealing with long-term clients in low-profit businesses. "Some firms are saying, we'll do business with and only do business with people who adequately compensate us for the use of our services," said a Street observer. "Guys are beginning to say, You want liquidity? Then what's it worth to you?'"

Whither Harding?

Although Harding has no immediate plans, market sources speculate he could end up at HSBC Securities, under the bank's president John Griff. Griff and Harding formerly worked together at Merrill Lynch, where Griff was the head of debt syndication business.

Sources said that HSBC's recent hire of Greg Meredith, former head of investment banking and capital markets for Banc of America Securities and former second-in-command to Griff at the former NationsBank, is a signal that the HSBC platform is improving. "There's no way Meredith would have taken a job at HSBC if they weren't moving in the right direction," said a source following the developments.

Griff did not return phone calls by press time.

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