altogether. “We’ve got a lot to do.”
The weather was beautiful for a late Saturday-night dinner on the patio of San Pietros, the southern Italian restaurant on East Fifty-fourth Street off Madison Avenue. During the week the restaurant plays host to Wall Street bigwigs over lunch: Joseph Perella of Perella Weinberg, the dean of the M&A banking business, has a table there; other regulars include Larry Fink, chief executive of BlackRock; Richard A. Grasso, the former chairman of the New York Stock Exchange; Ronald O. Perelman, the chairman of Revlon; and David H. Komansky, the former chief executive of Merrill Lynch; and even former president Bill Clinton and his pal Vernon Jordan.
Tonight Mack and Morgan Stanley’s management took a quiet table outside. For Chammah it was an opportunity to unwind and smoke a cigar. It had been a draining twenty-four hours.
Gerardo Bruno, a big personality from southern Italy who owns the restaurant with his three brothers, showed the group to their table. Mack took his blazer off and threw it over the back of his chair. Soon, Paul Taubman, Colm Kelleher, and Gary Lynch met them there. There was a lot to talk about.
After ordering a bottle of Barbaresco they launched into a postmortem of the grueling day, specifically the last crazy hour with Merrill Lynch, with Mack recounting the meeting with Thain for the benefit of those who hadn’t been in the room with him.
“And then he says, ‘Can you do it in twenty-four hours?’” Mack reported as the table erupted in laughter.
“No fucking way,” Colm Kelleher said.
Once the laughter died down, Mack raised the biggest question before them: Given the scope of the crisis now enveloping the industry, did they need to do a deal?
Chammah spoke up first. “Listen, there are not too many dancing partners out there that we want to dance with. If there’s ever going to be a time to talk, now’s probably the time.”
Gorman stepped in and explained that Merrill Lynch, given their conversation just an hour ago with Thain, was likely to merge with Bank of America, perhaps within the next twenty-four hours. That meant that Bank of America would be taken off the table as a merger partner. Gorman was still shaking his head over the audacity of Thain, Kraus, and Montag’s attempt to sell Merrill, a firm they had only recently joined and hardly knew.
“We could call Lewis,” Gorman suggested.
Mack had always thought that Bank of America could be a natural merger partner for Morgan Stanley; indeed, before the crisis, he had often half joked with friends that it was his “exit strategy.” When his stock price was higher, he had often thought a deal with Bank of America would be one triumphant way of demonstrating that he had restored Morgan Stanley, the firm he loved, to its former glory. Strategically, they were a perfect fit: Bank of America was an outstanding commercial and retail bank, but its investment side was weak. Morgan Stanley had the opposite configuration: It was a superior investment bank but had few stable deposits. Perhaps the best part of the merger would be that Mack, born near Charlotte, where Bank of America was based, could retire there with his family as the new, combined bank’s chairman.
But tonight, Mack understood, it wasn’t meant to be. “If Merrill goes to BofA, what do you think about Wachovia?” he asked as plates of Timballo di Baccala con Patate, Fave e Pomodoro arrived at the table.
For the next two hours, they debated the merits of reaching out to Wachovia, also based in Charlotte; JP Morgan Chase; or HSBC. They could call China Investment Corporation, the nation’s largest sovereign wealth fund, Kelleher suggested, while Paul Taubman mentioned Mitsubishi.
Whomever they might select, Mack was adamant on one point: “We shouldn’t be rushed into anything.” While it might be ugly out there, he reminded everyone of the obvious: They were Morgan Stanley, the global financial juggernaut. The firm’s market value was still more than $50 billion as of that Friday—a lot less than a month earlier but hardly a joke. And they had $180 billion in the bank.
Kelleher, the bank’s CFO, had been diligently building up liquidity for months, in the event of just such a situation in which they now found themselves. There was no way there could be a run on Morgan Stanley; they had too much credibility in the market. At the same time, he recognized that if Lehman was sold to Barclays, and Merrill was sold to Bank of America, his firm would be in the hot seat.
Chammah, taking a sip of wine, said soberly, “We could be up next.”
It was after 8:00 p.m., and Jamie Dimon, who was starving, made his way up to the executive dining room on the forty-ninth floor of JP Morgan’s headquarters. The operating committee had been working flat out for the entire day, calculating the firm’s exposure to Lehman, Merrill, Morgan Stanley, Goldman, and, of course, AIG, and the dining staff had been called in to work overtime to feed everyone. Tonight was tacos, and though the food may not have been as good as what the Fed offered downtown, it was better than Dimon had remembered. It was also the first time he’d eaten dinner in the recently renovated partners’ dining room.
In the middle of his meal, Dimon stood up and began pacing back and forth in front of the floor-to-ceiling windows, surveying the cityscape. From his vantage point he could see all of Manhattan in every direction. The sun had just crested below the Empire State Building a half hour earlier, and a fog hung over the city.
Dimon was mulling over the day’s events, realizing how bad it was out there. “They want Wall Street to pay,” he told the room of bankers relaxing after their late dinners, hoping to get them to appreciate the political pressure Paulson was facing. “They think we’re overpaid assholes. There’s no politician, no president, who is going to sign off on a bailout.” Then, channeling the populist anger, he asked, “Why
“We just hit the iceberg,” Dimon bellowed to his men, as if he were standing upon the deck of the
“So you might as well enjoy the champagne and caviar!”
With that, he returned to his table and took a final bite of taco.
At the Fed, Barclays, against all odds, appeared to be making progress. Earlier that day, Michael Klein, Diamond’s adviser, had come up with a structure for the deal with which they were all happy. Diamond wasn’t interested in Lehman’s real estate assets; what he wanted was the “good bank”—Lehman minus its troubled property holdings.
Klein’s plan was simple: Barclays would buy “good” Lehman, and the rival banks across the hall at the Fed would help finance the “bad bank’s” debt. That struck Diamond as a “clean” deal he could easily sell to his board
