Insurance Department. Earlier that morning, he had formally agreed to allow AIG to use some of its regulated insurance company assets—up to $20 billion—as collateral to help stabilize the company. Dinallo had been driving up to Governor Paterson’s office—he had been slated to stand behind the governor during a press conference to announce the plan—when Geithner called and told him he should be at this meeting instead.
As they milled about waiting for the meeting to begin, Blankfein poured a cup of coffee for Dinallo. “I hope you represent the bookends of this financial crisis,” he said, “because the last time I saw you was at the mono-lines, and I hope we’re done with AIG.” Dinallo had convened a meeting of Wall Street chiefs back in January to discuss the fate of the insurers Ambac and MBIA, which were faltering amid the credit crisis.
When Lee, Braunstein, and Feldman finally arrived, they immediately felt outgunned, as it appeared as if Goldman’s entire executive thirtieth floor had cleared out and set up shop at the Fed. Bob Scully and Ruth Porat from Morgan Stanley, who had now been officially hired by the Fed to represent its interests, were also stunned by the depth of Goldman’s presence. “Why is Lloyd here?” Scully whispered to Porat.
What went unspoken was the fact that all three banks, and virtually all of Wall Street, were huge counterparties to AIG. If the company were to fail, they would all face serious consequences. Therefore, there was a huge incentive to keep the insurer alive for everyone at the table.
On the surface, Goldman looked like one of AIG’s biggest counterparties, but earlier that morning, Goldman’s Gary Cohn had boasted internally that the firm had hedged so much of its exposure to AIG that it might actually
The group was ushered into a conference room with Tim Geithner. Dan Jester was at his side and Jeremiah Norton from Treasury, who had flown up from Washington that morning, joined them.
As everyone took a seat, Blankfein noticed Jamie Dimon’s absence. He himself had come because he assumed that Geithner had invited both of them. “Where the hell is Jamie?” Blankfein whispered to Winkelried, who just shrugged his shoulders.
“Look, we’d like to see if it’s possible to find a private-sector solution,” Geithner said, addressing the group. “What do we need to make this happen?”
For the next ten minutes the meeting turned into a cacophony of competing voices as the bankers tossed out their suggestions:
Geithner soon got up to leave, saying, “I’ll leave you with Dan,” and pointed to Jester, who was Hank Paulson’s eyes and ears on the ground. “I want a status report as soon as you come up with a plan.”
Before departing, he added one more thing: “I want to be very clear: Do not assume you can use the Fed balance sheet.”
The meeting then devolved again into a half dozen side conversations until some order was restored when Braunstein walked the room through AIG’s financial position, explaining how quickly it had deteriorated over the weekend. It was coming under pressure not only because of the impending ratings downgrade but also because its counterparties were making constant requests for more collateral. The comment was a not particularly subtle jab at Goldman Sachs, which itself had been battling all weekend, as it had all year, for AIG to put up more collateral. To some in the room, it seemed Blankfein picked up on the slight immediately.
“So, when
At that point, Jimmy Lee tried to break the log jam and take control of the meeting, having quickly become convinced that they were never going to get anywhere unless they started focusing on the big picture. AIG had forty-eight hours left to live unless the bankers sitting in this room did something productive to save it.
Lee had already started listing on a notepad some of the issues that had been raised and things he needed to know:
liquidity forecast
valuation—business, securities
term sheet
participants
legal in all
In the margins he scribbled some questions about the size of the hole—“50? 60? 70?” billion—and then drafted a mini-term sheet for a loan of this magnitude. “Maturity: 1-2 years; Collateral: Everything; Consideration: Fees, Ratcheting Spreads, Warrants.”
Given the size of loan AIG would require, the fees would be mind-boggling. He might be able to charge as much as 500 basis points, or 5 percent, of the entire amount for taking on this level of risk. For a $50 billion loan, that would add up to a $2.5 billion payday in fees.
Lee had even begun assembling a list of the banks to contact to raise the credit line, virtually all of whom had exposure to AIG and were therefore also vulnerable: JPM, GS, Citi, BofA, Barclays, Deutsche, BNP, UBS, ING, HSBC, Santander. He could have come up with many more names but stopped at eleven.
“Okay, okay,” Lee now said to the group and ran through the items on his list.
“I like that. That sounds right to me,” Winkelried chimed in.
The group decided to start their work with a round of basic due diligence, breaking the businesses into a half dozen categories and passing out assignments among themselves.
Before they got into the specifics, Blankfein took advantage of a pause in the discussion to make a beeline for the door. Without Dimon there, this was below his pay grade.
As they all decamped from the Fed and marched back to AIG to start crunching the numbers, Lee’s brain was already doing the math.
“Who is going to buy this shit?” he asked aloud to no one in particular.
