“How does Dick Fuld feel about it?”
“Oh, you know Dick,” he said with a sad laugh. “Always the optimist.”
“Will he survive the sale?”
“Who knows? That’s above my pay grade. Look, I’ve got to run. Talk to you later.”
I poured a cup of coffee and kept making calls. One was to my assistant. I was scheduled to fly to Naples, Florida, early Monday for the CME Global Financial Leadership Conference, where I would moderate a panel on the global credit crisis and interview former Fed chairman Paul Volcker. I told my assistant that the trip might have to be canceled, and she should be ready to make other arrangements. I was going to wait and see how things progressed that day.
I called another Lehman source—this one a lower-echelon type who worked below the thirty-first floor. I wanted to get a sense of what the traders were saying. He, too, was heading into the office. Off the record, he confessed to feeling bitter toward Dick Fuld. “It isn’t just me,” he said. “A lot of us are questioning his judgment and wondering how we got into this mess. Everyone thought Dick walked on water. That was then, this is now. Why did he take so long to try to raise money? Why didn’t he see this coming? It’s hard to accept.”
“What are you being told?” I asked. “Are people saying you should pack up your stuff?”
“No, it’s kind of hard to get information. But I’ll tell you something. When I came to work for Lehman, it was as if all my dreams had come true. It was the greatest company in the world. So you can imagine how I’m feeling. And multiply that by thousands of others.”
Ken Lewis, a native of Mississippi, enjoyed being outside the Wall Street club. His roots were lower middle class, and his story had all the elements of a rags-to-riches tale. His entire career had been spent at the Charlotte, North Carolina, headquarters of Bank of America, beginning in 1969, when it was called the North Carolina National Bank. A quiet man who masked his masterful business sense with a low-key Southern charm, he was fond of saying, “New York is a nice place to visit…,” leaving no mistake about the ending of the sentence. His office was six-hundred-plus miles from Wall Street, and he liked it like that.
On Saturday morning when he awoke, Lewis had no idea that by morning’s end he would be hurtling toward the Big Apple in his private plane, preparing to do the deal of his life. And it wasn’t the deal that certain parties had anticipated.
By 7:00 a.m., Lewis was on the phone with Hank Paulson, who was already at work at the Federal Reserve. He told the secretary that the more his people examined Lehman’s books, the worse they looked. Paulson replied that the consortium was still debating what they could take on, individually and collectively. He suggested that the consortium might be willing to come up with $40 billion to cover a large part of Lehman’s toxic assets. What did Lewis think about that? Lewis was unenthusiastic. He seemed to be retreating further and further from a deal. Once again, Paulson hung up, frustrated with the Bank of America CEO.
The truth was, Lewis had decided he wouldn’t buy Lehman. While Dick Fuld may have slept better Friday night thinking he had a verbal agreement with Bank of America, Lewis already knew he had changed course and his company wouldn’t be making a deal. How to explain the phone call my source overheard? Maybe Lewis was still making encouraging sounds on Friday, even as he had privately decided against Lehman. But on Saturday morning he was avoiding Fuld’s phone calls, as the calls became increasingly frantic. When Fuld phoned the home number Lewis had given him, Lewis’s wife, Donna, answered the phone and said Ken wasn’t available. Fuld, still thinking he had an agreement with Lewis, and needing to work out the details, pressed Donna Lewis on the urgency, but she remained vague. Her husband, she told Fuld firmly, would have to call him back.
Fuld waited as long as he could before putting in another call to Lewis. This time Donna Lewis sounded testy. “Ken has your message, and he’ll call you back if and when he wants to call you back,” she said.
Fuld was embarrassed and apologetic. “I’m sorry for disturbing you,” he said. “This is the number he gave me, but I won’t call again. I’m sorry.”
Meanwhile, John Thain awoke Saturday morning with one thought burning in his mind: Protect Merrill. Like Lehman Brothers and Bear Stearns before it, Merrill had its share of risky assets on the books. All the firms did. He was worried about market confidence. What if Lehman fell? Would the ripple effect bring down Merrill? He knew how dangerous the cycle could be. People would say, “Obviously, the assets are not worth what we thought,” and down they’d go. He didn’t want to be in a position of recovering pennies on the dollar. As he prepared to return to meetings at the Fed, he knew he had to be ready to take action to prevent his own company from losing liquidity if Lehman crashed.
Saturday morning the Federal Reserve was a hive of activity. There were dozens of bankers and lawyers milling around, working at makeshift tables all over the lobby. At 8:00 a.m., Geithner and Paulson were on a conference call with Barclays CEO John Varley and chairman Marcus Agius in London and Bob Diamond at Barclays midtown office. Varley confirmed that Barclays was serious about buying Lehman, but they wanted to leave behind more than $50 billion in bad assets. Paulson judged that they were not bluffing. He wondered if he could convince the CEOs to come up with that number.
When Paulson and Geithner emerged from the call, they headed into the conference room
