For the past several months, Cohen had been speaking with Fuld almost daily, trying to help him formulate a plan. He was very familiar with bank failures and wanted to make sure Lehman would not become one of them. Cohen had spent many days in the summer of 1984 in a hot, windowless room in Chicago, trying to work out a rescue of Continental Illinois National Bank and Trust. “We have a new kind of bank,” Stewart McKinney, U.S. representative from Connecticut, announced that year. “It is called ‘too big to fail.’ TBTF, and it is a wonderful bank.” The $4.5 billion government rescue plan that emerged was shaped in large part by Cohen. Cohen, who had also advised the board of Bear Stearns in its takeover by JP Morgan, had organized the call with Geithner’s office.
Pacing back and forth in his hotel room in Philadelphia before the wedding of his niece that night, Cohen joined the call between Lehman and the Federal Reserve of New York.
“We’re giving serious consideration to becoming a bank holding company,” Fuld started out by saying. “We think it would put us in a much better place.” He suggested that Lehman could use a small industrial bank it owned in Utah to take deposits to comply with the necessary regulations.
Geithner, who was joined on the call by his general counsel, Tom Baxter, was apprehensive that Fuld might be moving too hastily. “Have you considered all the implications?” he asked.
Baxter, who had cut short a trip to Martha’s Vineyard to participate, walked through some of the requirements, which would transform Lehman’s aggressive culture, minimizing risk and making it a more staid institution, in league with traditional banks.
Regardless of the technical issues that would have to be faced, Geithner said, “I’m a little worried you could be seen as acting in desperation,” and the signal that Lehman would send to the markets with such a move.
Fuld ended his call deflated. He had worked his way through a checklist of every alternative he could think of, and nothing was sticking. He and McDade had even begun working up a plan to consider shrinking Lehman Brothers into a hedge fund with a boutique bank attached and trying to take the firm private, outside the glare of public investors. But he’d need to raise cash from someone even to do that.
Later that evening, Fuld called Cohen, finding his lawyer in the waiting room of a hospital, attending to a cousin who had become ill at the wedding. It was time to consider a different kind of deal, he told Cohen. “Can you reach out to Bank of America?”
Selling Lehman had always been anathema to Fuld—“As long as I am alive this firm will never be sold,” he had said proudly in 2007. “And if it is sold after I die, I will reach back from the grave and prevent it.” He had, however, longed to make a big acquisition. For a brief moment he came close to buying Lazard—so close that he had even settled on calling the firm Lehman Lazard—a purchase that might have been his crowning achievement, turning his scrappy bond-trading operation into a white-shoe firm with a global reputation. Fuld had held a meeting in his then-office at the World Financial Center on September 10, 2001, with William R. Loomis and Steve Golub of Lazard. They left the meeting with plans to continue their discussions. Then, of course, came 9/11.
Bruce Wasserstein, who later took over Lazard, tried to resurrect the discussions, but Fuld became so outraged by the price Wasserstein said he wanted—$6 billion to $7 billion—that their conversation quickly devolved.
“Clearly we don’t see value the same way,” Fuld derisively told him. To Fuld, Wasserstein, who had been branded “Bid-em up Bruce,” had just lived up to his name. “There’s just no way I could pay that.”
Still standing in the emergency waiting room of the hospital, Rodgin Cohen found Greg Curl, Bank of America’s top deal banker, on his cell phone in Charlotte, where the bank was based. Curl, a sixty-year-old former naval intelligence officer who drives a pickup truck, had always been a bit of an enigma to Wall Street. He had helped orchestrate nearly every deal Bank of America had made over the past decade, but even within the bank he kept to himself and was generally considered a tough read.
Cohen, who had dealt with Curl over the years but had never been able to take an accurate assessment of him, trod carefully, explaining that he was calling on behalf of Lehman Brothers.
“Do you have any interest in doing a deal? Of all the institutions we’ve been considering, you’d be the best fit,” Cohen said, promising that he could get Fuld on the phone if Curl was curious enough to have a conversation.
Curl, though intrigued to be getting a call on a Saturday night, was noncommittal; he could tell they must be desperate. “Hmm … let me talk to the boss,” he said. “I’ll call you right back.”
The boss was Ken Lewis, the silver-haired CEO of Bank of America, a hard-charging banker from Walnut Grove, Mississippi, who was on a mission to beat Wall Street at its own game. (When he was a child, two boys once ganged up on him; his mother, catching sight of the scrap, came out of the house and said, “Okay, you can fight him, but you’re going to have to do it one at a time.”)
A half hour later, Curl called back to say he’d hear them out, and Cohen set up a three-way call with Fuld through the switchboard at Sullivan & Cromwell.
After some brief introductions—the men had never met before—Fuld began with his pitch.
“We can be your investment banking arm,” Fuld explained, the idea being for Bank of America to take a minority position in Lehman Brothers and for the two to merge their investment banking groups. He invited Curl to meet with him in person to discuss the proposal further.
Curl, sufficiently intrigued, said he would fly up from Charlotte to New York on Sunday. While Fuld thought it odd that he wasn’t negotiating directly with Ken Lewis, there was a compelling reason for Curl to travel alone: Lewis could legitimately deny that he had ever spoken with Fuld, should the discussion leak.
Before signing off, Curl made certain to underscore his greatest anxiety: “We want to be absolutely sure this is confidential.”
At midmorning on Sunday, David Nason and Kevin Fromer were sitting on the couch in Nason’s office at Treasury, going over a draft of the proposal to petition Congress for the authority to inject money into Fannie and Freddie in the case of an emergency. The office was littered with sandwich wrappers and bags from nearby Corner Bakery Café. Most of the staff had been working since early Saturday morning and had gone home only to grab a few hours of sleep. The proposal had to be ready by 7:00 p.m.
Suddenly, Paulson walked into the office with a look of horror on his face and, holding up a page of the draft, bellowed, “What the fuck is this? ‘Emergency authority on a temporary basis?’ Temporary?” he said, almost shouting. “We are not going to ask for temporary authority!”
The draft provided for emergency authority for a period of eighteen months, the rationale for which Fromer, who was Treasury’s liaison to lawmakers, leaned forward and attempted to explain. “Look, you can’t ask Congress for permanent—”
Paulson rarely allowed himself to show his anger, but he now made no attempt to restrain it as he paced the room.
“First of all, this is my judgment to make, not yours,” he said. “Secondly, this is a half measure. I am not leaving my successor with the same shit that I’ve got. We are going to fix these problems. I am not pushing this crap down the road.”