Inside the fall of Wall Street’s most powerful woman

The end came quickly for Erin Callan. It was at Thursday’s executive committee meeting, the daily 8 a.m. gathering of Lehman Brothers’ top executives, that Callan, the firm’s chief financial officer, admitted she had lost credibility with the Street and offered to give up the job.

Just like that, Wall Street’s most powerful woman fell. Her move came nearly seven months after Zoe Cruz, until then considered the Street’s top woman executive, was ousted as co-president of Morgan Stanley (MS), and more than a year after another powerful player, Sallie Krawcheck, stepped down as the CFO of Citigroup (C).

The purge at Lehman (LEH) followed the disclosure earlier this week that it expects to lose $2.8 billion in the second quarter. The firm’s stock has declined 64% this year.

While Lehman disclosed the news about Callan and the resignation of Joe Gregory from the president post simultaneously, his fall actually precedes hers. Gregory, who had been Callan’s greatest booster at Lehman, met with CEO Dick Fuld on Wednesday evening and the two men agreed that Gregory, 56, would leave the No. 2 job at the firm. Sources close to the company say that Fuld and Lehman’s board blamed Gregory, a 34-year veteran who was well-liked by employees, for focusing too much on cultural issues and failing to prevent Lehman’s losses, largely from real estate. He also suffered from Callan’s missteps in repeatedly trying to assure investors that Lehman is adequately capitalized.

While Fuld, 62, keeps his grip, it’s surprising to some, given multi-billion losses across Wall Street, that Chuck Prince, Stan O’Neal and Jimmy Cayne — of Citigroup, Merrill Lynch (MER) and Bear Stearns, respectively — are the only CEOs who have lost their jobs. John Mack hangs tough at Morgan Stanley; last fall, he gave Cruz the ax.

Callan, 42, was Lehman’s fastest-rising star and an unconventional one at that. The daughter of a New York City cop, she was a tax lawyer-turned-investment banker who oversaw Lehman’s relationships with hedge funds and private-equity clients until she got promoted to CFO last December.

Now Fuld, who has survived several crises in his four decades at Lehman, is putting his faith in two senior executives. New president Herbert (Bart) H. McDade III, 48, is a veteran trader who headed Lehman’s equities division since 2005. Callan’s replacement as CFO is Ian Lowitt, 44, a Rhodes Scholar from South Africa who recently was co-chief administrative officer.

As for Callan, the official word is that she will return to investment banking at Lehman. The better bet is that she’ll be scoping for another major job on Wall Street. And her next gig, outside Lehman, will likely not be so visible as this last one.

P.S. With Zoe Cruz and Erin Callan gone, who do you think is the most powerful woman on Wall Street?