As they began brainstorming about the trading-guarantee problem, Klein asked aloud, “Who could possibly do this?”
“This is the kind of thing that, a year ago, you’d go to AIG, and they would have wrapped this for you, right?” del Missier asked.
That clearly was no longer possible, and Klein offered, “What about Buffett?” “Yeah, but Buffett only does deals if it’s a fantastic deal for Buffett,” del Missier pointed out.
Klein had done some deals with the Omaha Oracle when he was at Citigroup and had all his phone numbers. He called and found Buffett at the Fairmont Hotel Macdonald in Edmonton, Alberta, as he and his second wife, Astrid Menks, were about to leave for a gala, unbeknownst to them, as the surprise guests.
Klein put him on speakerphone with Diamond and his team. Del Missier began to explain to Buffett why the guarantee was so important. “If Lehman trades dollars for yen with somebody, that bank needs to know that Lehman is going to deliver the dollars before they deliver the yen,” he told Buffett. “If there are worries that they’re going to be able to settle that trade, the whole thing is going to unravel.”
Buffett understood what was at stake but couldn’t fathom guaranteeing Lehman’s books for up to two months. But wanting to be polite, he suggested, “If you fax me something written out about it, when I get back, I’ll be glad to read it.”
As he shut his cell phone and strolled to his car on the way to the gala, Buffett remembered the last time he had received a call like this. What a mess that turned out to be. In 1998, the week before the rescue of Long-Term Capital, Jon Corzine of Goldman Sachs called asking if he’d consider joining a group interested in buying the giant, troubled hedge fund. Buffett was about to leave on a trip to Alaska with Bill and Melinda Gates, so he asked Corzine to send him some information on that deal. Then he ended up spending a day trying in vain to get his satellite phone to connect while he viewed grizzly bears in Pack Creek. He tried to orchestrate a deal between himself, Goldman, and AIG, but failed. It was a big waste of time and energy. Maybe he had to stop being so polite to these Wall Street boys.
Downstairs at the New York Fed, the CEOs and their underlings had all begun milling around the lunch buffet tables. Despite the grave assignment they’d been given, there was little they could actually accomplish on the spot. Not only did they not have computers with them, but the people with any real expertise in analyzing balance sheets and assets were either with the Lehman team upstairs or back at their offices, poring over volumes of spreadsheets.
In one corner a number of executives, trying to pass the time, were doing vicious imitations of Paulson, Geithner, and Cox. “Ahhhh, ummm, ahhhh, ummm,” one banker muttered, adopting Paulson’s stammer. “Work harder, get smarter!” another shouted, mocking Geithner’s Boy Scoutish exhortations. A third did his best impression of Christopher Cox, whom they were all convinced had little understanding of high finance: “Two plus two? Um—could I have a calculator?” In another corner, Colm Kelleher, Morgan’s CFO, had begun playing BrickBreaker on his BlackBerry, and soon an unofficial tournament was under way, with everyone competitively comparing scores.
After lunch, they were all summoned back into the main conference room, where John Thain’s absence did not go unnoticed.
If there was one topic besides Lehman’s future on the minds of the CEOs, it was the fate of their own firms. What would Lehman’s bankruptcy mean for them? Was Merrill really next? What about Morgan Stanley or Goldman Sachs? And what about JP Morgan or Citigroup? While commercial banks like JP Morgan had large, stable deposit bases, they still funded part of their business the same way the broker-dealers did: by regularly rolling over short-term commercial paper contracts that had become subject to the same erosion of confidence that had brought down Bear Stearns—and now Lehman Brothers. To them the waning trust only suggested the nefarious handiwork of short-sellers.
At one point, John Mack questioned the whole idea of bailouts and ruminated aloud about whether they should just let Merrill fail, too, even though seated just a few places away from him was Peter Kraus, who was standing in for John Thain. The question quickly quieted the room. Some thought he was gaming all of them—maybe he wanted to buy Merrill on the cheap? What they didn’t know was that he had approached Thain just hours earlier and had set a meeting for that evening.
Dimon looked at Mack dumbfounded. “If we do that,” he said caustically, “how many hours do you think it would be before Fidelity would call you up and tell you it was no longer willing to roll your paper?”
When Thain finally did call Ken Lewis, the conversation was brief and to the point—merely a discussion of the logistics of their meeting. Thain was concerned enough to get the details correct that he called Lewis back a second time to confirm which entrance of the Time Warner Center he ought to use.
Before driving over to Lewis’s apartment, Thain met with Fleming at the firm’s Midtown offices to strategize. He made it clear to Fleming that the discussions were purely exploratory—and that he wanted to sell only a small stake in the firm, maybe up to 20 percent.
“He’s not going to go for that,” Fleming warned. “Lewis is going to say that he wants to buy the whole company.”
Thain opened the car door himself, making a beeline to the entrance. Ducking under the extended steel-and-glass awning, with its One Central Park address, he rushed solo up the South Tower to Lewis’s apartment.
Lewis greeted Thain warmly in a room with striking views but one that revealed its status as a corporate apartment by the virtual absence of artwork or furniture.
“Given all the events that were going on,” Thain said, once they settled themselves, “I am concerned about the impact on the market and on Merrill if Lehman were to go bankrupt.” He paused for a few seconds and then said bluntly: “I’d like to explore whether you’d have an interest in buying a 9.9 percent stake in the company and providing a large liquidity facility.”
“Well, I’m not really very interested in buying 9.9 percent of the company,” Lewis shot right back just as directly. “But I am interested in buying all the company.”
“I didn’t come here to sell the entire company,” Thain replied with a slight grin on his face, having not expected Lewis to be so aggressive.
“That’s what I’m interested in,” Lewis repeated firmly.
Thain nervously tried to forge a compromise. “Are you willing to go down two tracks, explore a 9.9 percent sale and explore a 100 percent sale?”
“Yes,” Lewis agreed, “but remember that I said to you, I’m not really interested in 9.9 percent, I’m really interested in a full merger.”
Lewis and Thain spent the next half hour reviewing the various mixes of businesses, the strategic rationale for a merger, and assembling some due diligence teams. Lewis suggested they reconvene with “the two Gregs”—Greg Curl and Greg Fleming—at 5:00 p.m.
“I can’t do it then,” Thain told Lewis.
Strange, Lewis thought. Thain showed up wanting to do a deal and now he couldn’t meet in two hours? Did he have somewhere better to be? Was he in talks with someone else?
As he was about to leave, Thain stopped and raised a final point: “I have to tell Hank about these conversations,” he explained, “because I’m worried that if Hank finds out about them, he’s going to think that I screwed up the Lehman deal.”
“Well, look, you know,” Lewis answered, “I would prefer the Merrill deal. You can tell Hank that we’re having these discussions, because we’re not going to pursue Lehman without government assistance.”