AT NINE O’CLOCK on Saturday morning, Wall Street’s most powerful CEOs were gathered in a conference room at the New York Fed at 33 Liberty Street. Jerry Rabin had exercised the ultimate prerogative of his office – the ability to call the leaders of America’s financial community out of their weekend homes and off their golf courses to meet in crisis conclave.
Rabin, Susan Opitz and Mike O’Brien, head of the SEC, walked into the room, accompanied by a number of their aides. The pleasantries were brief. Rabin had had his assistant organize the meeting without telling the CEOs the purpose, but they had all guessed what it was about. As instructed, they had come into the building via the back garage entrance to avoid journalists who might be waiting at the front. Each had brought a number of his top executives, but only the eight CEOs themselves sat in the room. The others cooled their heels outside.
Individually, most of the CEOs had been involved in conversations about Fidelian earlier in the week. Now Rabin laid out the latest situation, going through the details of Fidelian’s upcoming losses, the cash the bank would require, and other key points to make sure the issues were fresh in everyone’s mind. Matters that would normally have been the subject of the highest confidence from competitors were laid bare. The eight men listened silently, showing no outward reaction when the numbers were mentioned, exchanging, at most, a glance with one another.
Rabin didn’t know exactly what to expect from them. These men knew each other well. They met at any number of events and found themselves on the same or opposite sides of any number of deals. And traditionally Wall Street bosses pulled together to save one of their brethren’s skin when their own skins were threatened. But they were each king of the hill in their own organization, and they were fierce competitors. A good number of personal antagonisms had walked into that room together with those eight men. Years of poaching each other’s clients, talking each other’s businesses down, stealing each other’s high performing executives, left plenty to be sore about. Some of them took it philosophically and remained amicable, others never let go. Jim Perlman, CEO of Goldman Sachs, and Bob Aspin of Deutsche BoA literally hated each other, the malice going back to a deal two decades earlier from which each had walked away accusing the other of dishonesty. They had been known to have stand-up shouting matches when fate put them in the same room.
Rabin didn’t mention the price Bill Custler had asked for. He didn’t want the bankers walking out before they even considered his request. What he did say was they had to find a way to provide a fair price for the assets of the business. They shouldn’t be here if they were looking for absurdly priced bargains.
‘I shouldn’t be here at all,’ muttered Aspin.
Perlman shrugged. ‘I don’t think any of us would be too disappointed if you left.’
Rabin ignored the asides. Bob Aspin had made his name as a ruthless costcutter when he brought Deutsche’s US operations together with Bank of America. He hadn’t been too helpful in the earlier conversations about Fidelian but Deutsche BoA was cashed up, largely as a result of Aspin’s activities, and Rabin knew they were in a position to help if they chose to.
‘Jerry,’ said Hamish Harvey-Wills, an expatriate Brit who ran Morgan Stanley, ‘it doesn’t seem to me the gentlemen at Fidelian are in a particularly strong position to bargain on this one.’
‘That’s what you’d imagine,’ said Rabin. ‘In fact, don’t assume that. They think they are.’
Harvey-Wills raised an eyebrow.
‘They won’t sell if they consider they’re being exploited. They’d prefer to go bankrupt.’
‘Then let ’em,’ Perlman said. ‘Who cares? The strong survive, the weak feed ’em.’
‘Jim,’ said Rabin, ‘that’s not a scenario we want to consider.’
‘But it’s a scenario they want to consider. So let’s consider.’ Perlman got up. ‘When they’re ready to consider something real, give me a call.’
‘Here we go,’ muttered Aspin.
‘Jim, come on, sit down,’ said Sonny Mello of JP Morgan Suisse. Mello was a tall, thin man with silver hair and a taste for Savile Row suits which he had flown in from London. He was more of a conciliator than the average banking chief executive and over the years had come to adopt the unofficial role of mediator to this bickering tribe when they were brought together.
Perlman looked around the room. He sat. Jim Perlman enjoyed putting on a show. He wasn’t really angry. Not yet.
‘Jerry,’ said Ed Loeffler, the CEO of Citigroup, who had planned to be at a nephew’s wedding in California this weekend but had put his flight on hold, ‘I don’t know about everyone else here, but I already put forward an offer for certain parts of the Fidelian business. What’s the response? I assume the reason you’ve got us sitting here today on a Saturday morning is because they weren’t prepared to accept it. Have they named a price?’
Rabin shook his head. ‘They want what they call fair value. I don’t know if that’s a price as such.’
Loeffler watched the chairman of the Fed knowingly. ‘Jerr, have they given you a number?’
‘There’s no binding number.’
‘Jesus Christ, Jerry,’ said Perlman. ‘Have they or have they not given you a number?’
Rabin glanced at one of his aides.
‘We have seen a number, Mr Perlman, which we do not consider realistic. It’s not fixed. We don’t consider it a floor.’
‘To hell with what you consider it. What do
they
consider it?’
‘We’ve told them it’s unrealistic. They know it. Bill Custler is talking to his shareholders as we speak.’
‘This is bullshit,’ said Aspin. ‘Jerry, you’re asking us to buy this shitty excuse for a bank from a bunch of owners who don’t accept the position they’re in. Excuse me, but I never saw a deal done like that.’
Rabin didn’t respond.
‘Let’s step back from the price for a second,’ said Harvey-Wills. ‘How do we know the writedowns are limited to the numbers you’ve mentioned? There could be massive exposure here that none of us is aware of. Not to mention that you’re asking us to agree to this … When?’
‘We need to announce a deal before the markets open Monday morning,’ said Susan Opitz.
‘Not sure that we’re
quite
going to get the due diligence done.’
‘Sounds like a political agenda to me,’ muttered Aspin.
‘You’ve all got your own idea of what you think Fidelian’s worth,’ said Rabin. ‘At least you’ve all got a good idea of what you think some parts are worth. Bob, you wanted to buy part of its operation a year back.’
‘That was then,’ said Aspin. ‘Half the guys we wanted have gone now.’
‘Yeah,’ said Perlman, ‘because you poached them.’
‘You got a problem with that, Jim?’
‘Yeah, I got a problem with it. I got a problem with the way you fucking poached my forex team right off my floor.’
‘Well, if you can’t keep ’em, Jim …’
‘You telling me what I can do? You wanna tell me what I can do?’
‘Looks like someone has to. Ask me, someone ought to take a good long look at what you’re doing over there with what was once a fine firm.’
‘What
I’m
doing? If we’re gonna start talking about looking at what someone’s doing, I’d say we start with–’
‘Gentlemen!’ said Rabin. ‘Enough, huh?’
Perlman stopped. He and Aspin glared at each other. The rest of the CEOs watched, disappointed that the Fed president had stopped what was shaping up to be a memorable spat between the legendary pair.
‘Let’s get back to what we’re here for,’ said Rabin. ‘Here’s what we’re proposing. You don’t need to do this by yourselves. The federal government is going to give you whatever help it can. Now, there’s twenty-three billion of capital that you’re going to have to put in. That’s there. Factor that into your figures, assume it’s going to happen and tell us what you need to be able to cover that. We’re prepared to make funds available on a long-term basis. We can talk about the commercials. Next, we’ll guarantee you cover for any additional writedowns Fidelian has to make over the next twelve months.’
‘Who’s we?’ said Perlman.
‘The government,’ replied Opitz. ‘We don’t want you to have any nasty surprises. Beyond the twenty-three billion, you take only the first two billion of anything else you find. We’ll carry the cost of anything else you find up to a total of twenty billion. The federal government will guarantee that.’
Jerry Rabin nodded.
There was silence in the room. Opitz could see the men calculating.
‘Is that eighteen or twenty billion you’ll guarantee?’ asked Loeffler.
‘That’s eighteen. Up to a total of twenty. You take the first two, then if we’re needed, we’re there for up to another eighteen. We think that’s an extremely generous proposition.’
‘Who cares?’ said Aspin impatiently. ‘I don’t want anything to do with this. I don’t want federal money. It’s poison. I don’t want it and I don’t need it.’
‘What level of scrutiny are you going to require?’ asked Harvey-Wills.
‘We would need to assure ourselves,’ said Rabin, ‘that any additional writedowns are genuinely coming out of Fidelian business.’
‘Yeah, and before you know it you’ll be looking at pay and bonuses and we’ll be up in front of Congress explaining why we have to pay some trader what we already agreed to pay him.’ Aspin snorted and looked around at the others. ‘We’ve seen this before. You guys, you want to get involved in that stuff, be my guest. I have no interest in it. I don’t need Congress looking into my bank and I sure as hell don’t need the press talking about me like I’ve taken some kind of money off the taxpayer.’
‘Bob,’ said Rabin. ‘It’s only a guarantee.’
‘Looks the same from the outside.’
‘You don’t have to take it,’ said Opitz.
‘Yeah, right. And expose myself to an unquantified level of risk because you’re asking me to do a deal in six hours. Madam Secretary, I didn’t get to where I am today by being the baby people steal the candy from.’
Opitz took a deep breath. ‘Mr Aspin, I think we should remember where we all come from.’ She looked around the room. ‘Every one of you took money from the government in ’08. Every one of your institutions. To me, that means not one of you would be here today if the government, if the American taxpayer, hadn’t been prepared to hold out a big bag of cash to you when it mattered. Let’s just remember that. Now, what I think the American taxpayer is saying, is that it’s time you guys did something in return.’
Aspin smiled incredulously. ‘This is blackmail.’ He looked at Rabin. ‘Do you agree with what the secretary just said, Jerry? Because if you do, this is straight-out blackmail.’
‘Mr Aspin, this is not blackmail,’ said Opitz coolly. ‘Blackmail is when someone says they’re going to do something bad to you if you don’t do a certain thing they desire. I am not saying that. The bad thing that will happen, you’ll be doing to yourselves, because if this bank goes down, there’s not one of you that won’t suffer. You know that better than me. So I’m saying we have a need here, all of us, to get this settled. And I’m saying the federal government will do its bit by offering to help so you can do your bit. We’re asking you to make a commercial decision in your own interest which we will support. We’re not asking you to put anything at risk. We’re going to take the risk away from you.’
‘You’re asking us to be the agents of a federal government intervention. Well, Madam Secretary, go intervene yourselves.’
‘You know we can’t do that.’
‘And there’s a good reason for that. It’s called the market. The market makes the call.’
‘Let’s hold up,’ said Rabin. ‘You guys all know what happens if this bank goes down.’
‘It goes down,’ said Aspin.
‘Bob,’ said Rabin, ‘I believe that’s what people said the weekend before Lehman went down.’
‘Fidelian ain’t no Lehman.’
‘It’s big enough. We can’t allow that to happen. Neither can you. I assume each of you has already figured out the likely hit you’ll take if Fidelian falls over.’
‘As I said,’ said Aspin, ‘Fidelian ain’t no Lehman. Not for Deutsche BoA, anyway. I think what we have here is political calculation masquerading as economics.’
‘No we do not!’ retorted Opitz. ‘Have you calculated the cost of the systemic economic effects we’re going to see if this happens? We have.’
‘Blackmail,’ said Aspin.
‘Bob, I don’t think we should use that word,’ said Sonny Mello. ‘I don’t think that’s appropriate.’
Aspin gave a disgruntled shrug.
Jerry Rabin glanced at Opitz. She nodded slightly. He looked back at the bankers. ‘This is a very serious situation. The president would like to speak to you.’
One of Rabin’s aides reached into his briefcase and produced a secure phone.
It took a couple of minutes to get through the White House switchboard to the president. The bankers waited silently. Aspin sat, arms folded across his chest, face set, as the president encouraged them – made it clear that he expected them – to find a way to do a deal.
‘Well,’ said Aspin when the president had finished. ‘Now it’s blackmail with icing on top.’ He stood up. ‘Mr Chairman, Madam Secretary, Deutsche BoA does not believe there’s a deal to be done here. You said at the beginning of this meeting that everything that takes place in this room will remain confidential. I assume you will honor that undertaking.’
Rabin nodded.
‘Goodbye, then.’
Aspin walked out. Perlman muttered something to himself.
There was silence.
‘Okay,’ said Sonny Mello. ‘Here’s what this deal needs to look like. There’s a bunch of loans in this business that no one’s going to want. We separate them out, the rest is maybe doable at a couple of bucks a share plus the money the Fed’s making available. That means we’re going to have to put something in to create an entity that can take those loans away. So in the words of one of my illustrious predecessors, let’s make it simple. How much would each of us put in to save Fidelian?’ He glanced for a moment at a piece of paper on which he had made some calculations. ‘From what I’ve heard, and taking account of the guarantees the government’s providing, I’d say ballpark we’re looking at three-quarters of a billion each. Who’d agree to put that in?’