NOT long ago, when Lehman Brothers chief executive Richard Fuld talked about "everyone's worst nightmare", he was referring to a massive fraud at French bank Societe Generale.

Just a few months later, Mr Fuld, a 30-year veteran of Lehman who had ably steered it through near-death experiences like the Asian debt crisis of 1998, is living his own worst nightmare as the venerable investment bank stands on the verge of collapse.

How the 158-year-old institution came to this is a tale of hubris and over-reaching - and a big dose of bad luck.

Lehman's fall from grace was brutally fast. Until June, it had never even reported a quarterly loss as a public company.

As recently as March, Mr Fuld was awarded a US$22 million (S$31.5 million) bonus for last year - a generous pay package to be sure, but one that also reflected a year in which the bank's net profit had risen 5 per cent to a record US$4.2 billion.

But Lehman soon emerged as Wall Street's next domino as real-estate loans and other toxic assets increasingly weighed on its balance sheet, especially after the collapse of Bear Stearns in March.

Still, few were willing to second- guess its 62-year-old CEO.

"Fuld went wrong in not taking seriously enough the impairment of his balance sheet," said analyst Charles Peabody at independent research firm Portales Partners.

As the credit crisis worsened, Mr Fuld was Wall Street's one seemingly teflon chief executive, keeping his job unchallenged even as CEOs fell at rivals like Bear, Merrill Lynch and Citigroup.

Lehman's board, which includes retired CEOs like Vodafone's Christopher Gent and IBM's John Akers, may have been too slow to challenge Mr Fuld - a former competitive squash player - as its share price spiralled lower.

As recently as June, rival CEOs like Lazard's Bruce Wasserstein were still professing confidence in Mr Fuld, nicknamed "The Gorilla" for his intimidating presence.

Lehman, until recently Wall Street's fourth-largest investment bank, for years did a big business in originating mortgages, re-packaging them and selling them.

It was the top United States underwriter of mortgage bonds in 2007 and 2006, grabbing about 10 per cent of the market. But as the US housing market went from boom to bust, the firm ended up being unable to unload many of the most toxic loans.

At key junctures, Mr Fuld seems to have played a game of brinksmanship, refusing to accept offers that could have rescued the firm because they didn't reflect the value he saw in the bank.

Last month, he had a chance to sell a 25 per cent stake in Lehman for US$4 billion to US$6 billion to state-run Korea Development Bank, but by some accounts he baulked, saying the offer was too low, said the Wall Street Journal.

Differences over price also thwarted talks to sell up to half of Lehman shares to China's Citic Securities last month, the Financial Times reported.

"Dick Fuld really blew it," said Smith Asset Management CEO William Smith. "How many opportunities did he have to sell Lehman?"