John Akers, the former chief executive of IBM, interrupted. “So you’re not actually directing us?”
“I’m not saying anything more than what I just said,” Cox replied before ending the conversation.
The directors looked around at one another dumbfounded as Fuld sat impassively, his head buried in his hands.
Tom Russo, Lehman’s chief legal officer, stood and outlined the board’s responsibilities under securities laws. As he spoke, some directors talked quietly among themselves. Bankruptcy seems inevitable. Do we file now? Next week?
The government, they all knew, had plenty of leverage. If they did not do what Cox wanted, who knew what the consequences could be? The Fed, which had agreed to lend money to Lehman’s broker-dealer unit to allow it to fund trades, could just as easily close it and force Lehman into liquidation. There was a motion to vote on filing for bankruptcy.
Henry Kaufman, an eighty-one-year-old former Salomon Brothers economist who headed the Lehman board’s risk-management committee, haltingly stood up to speak. Known as “Dr. Doom” for his downbeat outlooks in the 1970s, Kaufman had been sharply critical of the Fed earlier in the year, accusing the central bank of “providing only tepid oversight of commercial banking.” Now he again took aim at the government for pushing Lehman into bankruptcy.
“This is a day of disgrace! How could the government have allowed this to happen?” Kaufman thundered. “Where were the regulators?” He went on for another five minutes without stopping, and when he finally slumped into his seat the other directors could only look on in sadness.
As midnight approached, the resolution to file was put to a vote and passed. Some of the directors had tears in their eyes. Fuld looked up and said, “Well, I guess this is good-bye.”
One of the bankruptcy lawyers, Lori Fife, laughed. “Oh, no. You’re not going anyplace,” she said. “The board will be playing a pivotal role going forward.”
Miller elaborated on her point: “You’re going to have to decide what to do with these assets. So it’s not good-bye. We’re going to be seeing each other for a while.”
Fuld looked at the lawyers for a moment, dazed. “Oh, really?” he said softly, and then slowly walked out of the room, alone.
Warren Buffett, just back in Omaha from Edmonton, had received word of Lehman’s pending bankruptcy before he arrived at the Happy Hollow Country Club for a late dinner with Sergey Brin, the co-founder of Google, and his wife, Anne.
“You may have saved me a lot of money,” he said to the Brins with a laugh in the grand dining room. “If it wasn’t for getting here on time, I might have bought something.”
Mayor Michael Bloomberg, who had been on the phone with Paulson, called Kevin Sheekey, his deputy mayor for government affairs, from his brownstone. “I think we have to cancel our trip to California,” he told Sheekey, who was already packing his bags for a high-profile event with Governor Arnold Schwarzenegger that he had been planning for months.
“The world is about to end tomorrow,” Bloomberg explained, without a hint of sarcasm.
“Are you sure you want to be in New York for that?” Sheekey deadpanned.
Peter G. Peterson, co-founder of the private-equity firm the Blackstone Group and the CEO of Lehman in the 1970s before being ousted by Glucksman, was watching television with his wife, Joan Ganz Cooney, when she passed him the phone. It was a New York Times reporter asking him to comment on the day’s events.
After pausing for a moment to take it all in, he said: “My goodness. I’ve been in the business thirty-five years, and these are the most extraordinary events I’ve ever seen.”
Christian Lawless, a senior vice president in Lehman’s European mortgage operation in London, still at the office, e-mailed his clients Sunday night with a final sign-off:
Words cannot express the sadness in the franchise that has been destroyed over the last few weeks, but I wanted to assure you that we will reappear in one form or another, stronger than ever.
At Wachtell Lipton, Ken Lewis, of Bank of America, had a wry smile on his face. “Wow!” he exclaimed.
The deal with Merrill had been concluded—both boards had approved it—and he was waiting to share a champagne toast.
But reaching the deal was not what he now found so amusing. Out of the blue, Stan O’Neal, Merrill’s former CEO, had sent an e-mail message to Herlihy that he read aloud: “I deeply regret my inability to convince the Merrill board a year ago,” O’Neal wrote, referring to their secret talks last September. Then he followed up: “While I would expect the answer is no, I would offer my advice and counsel to Ken Lewis Re: Merrill.”
That e-mail was perhaps the only moment of levity in an atmosphere that had grown increasingly sour. Lewis had grown frustrated waiting around for the lawyers to finish with the deal documents so that he could sign them.
Lewis himself hadn’t gotten involved in the specific details, but the merger agreement contained a handful of “side letters” and separate agreements covering compensation that seemed to be taking some extra time for the lawyers to hammer out. Fleming had convinced Curl to agree to pay as much as $5.8 billion in “incentive compensation,” which was considered an unusual arrangement, given that that was the amount Merrill had paid out a year earlier, before the market downturn. But both Curl and Fleming felt the sum was necessary to make certain they could retain the firm’s employees.
It was growing late, and the Federal Reserve was still trying to get a reading of where the Bank of America-Merrill deal stood. The Federal Reserve Bank of Richmond, which had been overruled by Bernanke and Geithner earlier in the week about Bank of America’s capital ratios, was particularly concerned.
At 9:49 p.m., Lisa A. White, assistant vice president at the Federal Reserve Bank of Richmond, concluded a conversation with Amy Brinkley, Bank of America’s chief risk officer. White immediately sent out an e-mail to her colleagues titled “BAC Update”:
Just got off the phone with Amy Brinkley. She says that a deal with Merrill is solidified except for a few legal details that need to be worked out. Both boards have approved the deal, and once the legal issues are finalized, they will make an announcement … .
Amy indicated that BAC management feels a much higher level of comfort with Merrill than it did with Lehman, specifically with the value of the franchise and the marks on the assets. While Amy acknowledged that it may look to the outside world as if BAC is paying a bit of a premium for Merrill, BAC’s estimates of Merrill’s asset values indicate they are getting the firm at a 30-50% discount. Chris Flowers, the prominent private equity guru, has done extensive due diligence on Merrill over the past few months for potential equity investors, and I got the impression that BAC is at least partially relying on this work.
Will pass along more details as we get them.
After Chris Flowers left AIG, heading for a walk around Trinity Church at the intersection of Broadway and Wall Street, he decided to check in with Jamie Dimon, hoping to get some insight about the status of his bid for AIG, which he had left with Willumstad in the afternoon.
“What are you hearing?” Flowers asked. “Willumstad hasn’t told us shit.”
“You know, I think you pissed them off,” Dimon told him.
“Okay. I don’t know why, but I guess we did,” he said, and hung up.