The second quarter was a tumultuous one forLehman Brothers and Wachovia Corp., two of the country's leading financial institutions.

Continuing a recent pattern of financial services firms bidding farewell to their chief executive officers, Wachovia's board asked longtime CEO, G. Kennedy Thompson, to retire. At press time, Lehman Brothers' CEO, Richard S. Fuld, Jr., had avoided the same fate. But president and chief operating officer, Joseph Gregory, and chief financial officer Erin Callan were suddenly reassigned after disappointing second-quarter results and writedowns that totaled $11 billion.

Ian Lowitt succeeded Callan as CFO, while Herbert McDade III, took over Gregory's slot. Callan was reassigned to a senior executive role within Lehman's investment banking division. Gregory's new role was unclear.

The reassignments came on the heels of news that Lehman expected to see a $2.8 billion loss in the second-quarter and that it planned to raise $6 billion through common and mandatory convertible preferred stock issuances.

Just days before she was reassigned, Callan said during Lehman's conference call about its earnings, that the capital the firm expects to raise is not being held against particular asset exposures on the company's balance sheet. The efforts to raise capital are "so we can get back to running our business on a day-to-day basis and stop the distractions and discussions we have related to our balance sheet," Callan said during the call.

Meanwhile, Wachovia's board asked Thompson to retire after the bank endured a string of disappointing results. One analyst from Robert W. Baird & Co. said he expects more bad news from Wachovia. "While not completely surprised by the announcement, Thompson's departure was sudden in our opinion," wrote David A. George, an equity analyst at Baird. "We wouldn't be surprised to see more bad news (credit, capital markets, dividend) out of [Wachovia] over the coming weeks." George maintains a neutral stance on Wachovia, saying that although the company's share price had underperformed in the first few days of June, he believed the risk/reward ratio was not attractive enough to warrant a stock purchase.

Unlike Wachovia's Thompson, Lehman's chairman, Fuld, didn't appear to have come under any pressure to resign or retire as of press time. In fact, Fuld and Lehman still enjoyed the confidence of at least two high-profile banking analysts. "We are buyers of the stock on the assumption that CEO Dick Fuld will steady the Lehman ship, and with greater stability, the stock will appreciate," wrote Mike Mayo, an analyst at Deutsche Bank in early June.

Merrill Lynch analyst Guy Moszkowski said the early June price correction in Lehman's stock had been overdone, and that concerns about the bank's share price suffering further from a Bear Stearns-style funding challenge were unfounded. Lehman's shares "have meaningfully undershot fair value in the last few days, on speculation and concerns that are not justified, in our opinion, given access to the [Federal Reserve's] primary dealer facility and ample liquidity," wrote Moszkowski.

Those persistent rumblings about liquidity put Lehman in need of some analyst praise. Rumors of a possible sale were rampant, along with accounts that the company had approached several South Korean investors, including the Korean Development Bank and Woori Financial Group.

Those concerns were not totally unsubstantiated. Credit-default swaps had widened from 140 basis points in early May to about 260 basis points a month later. In addition, Standard & Poor's had downgraded Lehman's long-term rating to A, from A+, in keeping with a review of the global securities industry.

Before Lehman's early announcement, Deutsche Bank's Mayo predicted that Lehman would take action by raising about $4 billion in capital, citing a desire on the part of the company's management to stay in control of its destiny and focus more of its efforts on offensive, rather than defensive, tactics. Still, Deutsche Bank lowered its share-price target estimate to $49, from $52, saying that it expects hedging losses at Lehman, as well as dilution should the firm issue additional equity.