As soon as Braunstein and Hogan left the building and crossed Lexington Avenue, they called Jamie Dimon and Steve Black.
“Here’s the story,” Hogan said, virtually shouting into his cell phone. “I think these guys are fucked.” They proceeded to walk Dimon and Black through all of the details of what Lehman was preparing to announce the following day.
“We have to go back and tie everything up and line up all of our contingent risks,” Hogan insisted. “I don’t want to take a hickey on this.”
From the Bank of America headquarters in Charlotte, North Carolina, Greg Curl dialed Treasury’s Ken Wilson, who was still in his office, frantically fielding calls. Wilson had been expecting to hear from Curl, notifying him that he was getting on a plane to New York to begin his due diligence on Lehman.
Curl, however, was phoning with very different news. “We’re having an issue with the Richmond Fed,” he explained. Jeff Lacker, the president of the Federal Reserve of Richmond, Bank of America’s regulator, had been concerned about the bank’s health and had been putting pressure on it to raise new capital ever since it had closed its acquisition of Countrywide in July. As the official overseer of banks in Virginia, Maryland, North Carolina, South Carolina, the District of Columbia, and part of West Virginia, the Richmond Fed wielded considerable power through its regulation of capital reserves.
“They’ve been screwing around,” Curl complained to Wilson, who was hearing of this for the first time. Curl told him that at the time that Bank of America was considering acquiring Countrywide back in January—a purchase that the government had quietly encouraged to help keep that firm from imploding—the Fed had quietly promised to relax its capital requirements if it proceeded with the deal. Or at least that’s what Ken Lewis thought.
Now, two months after the Countrywide acquisition had been completed, Lacker was threatening to force the bank to slash its dividend. Bank of America had not disclosed the conversations, hoping they’d be able to resolve the matter before the news ever leaked. The bank had been working the phones that afternoon with the Richmond Fed to try to figure out where the bank now stood with Lacker, but it was having little luck. “We’re going to need your help,” he told Wilson. “Otherwise, we can’t move forward.”
Wilson recognized the gambit all too clearly: Bank of America was using the Lehman situation as a bargaining chip. The bank would help Lehman, but only if the government would do it a favor in return. Lewis, through Curl, was playing hardball.
Wilson promised to look into the matter and then immediately called Paulson. “You’re not going to believe this …”
At 10:00 p.m., a frustrated Bart McDade was still holding court in the boardroom on the thirty-first floor at Lehman Brothers. He had just learned that Bank of America wasn’t coming up to New York in the morning, though he didn’t yet understand exactly why. “We’re playing against the clock,” he railed.
Hours earlier, McDade had implored Fuld to go home and get some sleep before tomorrow’s earnings call, for which he needed to be in his best form. Since Fuld left, he had been reviewing various drafts of the press release. What should they say? What
McDade had just finished coaching Lowitt, his CFO, through his part of the presentation when Wieseneck and Whitman returned from their meeting with JP Morgan and Citigroup.
Before joining everyone in the boardroom, they huddled with Jerry Donini and Matt Johnson, along with a half dozen other bankers. Whitman described the entire meeting to them. “It was unbelievable,” he concluded his account, shaking his head. “It was like a JP Morgan risk convention!”
The group then joined McDade in the conference room, where, after Wieseneck and Donini walked the group through the SpinCo plan, Wieseneck shared the advice that JP Morgan and Citigroup had given them earlier. “We’ve got to be careful how we message if we intend to raise capital or not,” Donini warned.
It was about 1:30 a.m. before everyone finally packed it in. A small fleet of black Town Cars lined Seventh Avenue in front of the building to whisk the bankers home. They’d need to be back at the office only five hours later, giving them time for perhaps a brief nap and a shower, before a day that they suspected would determine the course of their futures.
CHAPTER THIRTEEN
The day’s papers for Wednesday, September 10, 2008, were strewn everywhere in Dick Fuld’s office, where a sleep-deprived Bart McDade and Alex Kirk had arrived at 6:30 a.m. for last-minute preparations for the looming conference call, scheduled to begin in only three and a half hours. The news was not good.
The lead of the
Several paragraphs down came the quote that succinctly stated the threat that now faced them: “Some may worry that Treasury has taken on so much taxpayer burden they don’t have any remaining capacity to take on the burdens of Lehman,” said David Trone, an analyst at Fox-Pitt Kelton.
The
It wasn’t just the stock investors who were nervous; Fuld and McDade had already begun receiving reports from the trading floor that morning indicating that more hedge funds were pulling their money out of Lehman. A sign of just how desperate the situation had become was that GLG Partners of London—whose largest shareholder, with a 13.7 percent stake, was Lehman—reduced the amount of business it conducted with the firm.
As they were making yet another pass through the earnings call script, Kirk’s cell phone rang. It was Harvey Schwartz from Goldman Sachs, phoning about the confidentiality agreement that Kirk was preparing. Before Schwartz began to discuss that matter, however, he said that he had something important to tell Kirk: “For the avoidance of doubt, Goldman Sachs does not have a client. We are doing this as principal.”
For a moment Kirk paused, gradually processing what Schwartz had just said.
