Too Big to Fail [126]
Passing through the main glass doors into a wood-paneled reception area, Willumstad and Schreiber took in the newly renovated offices on the forty-eighth floor. As the two men sat waiting, Willumstad knew his associate was silently irate. Schreiber had been working throughout August on various plans to raise capital and extend the company’s credit lines to avoid facing a cash crunch if the market were to worsen. As part of his efforts he had held a bakeoff among a number of banks and had been unimpressed with JP Morgan’s pitch—and he was still smarting from the firm’s aggressive attitude when they raised capital for AIG in the spring. He had hoped to use Citigroup and Deutsche Bank, but Willumstad had insisted that they consider JP Morgan. The way things were playing out, if things really did get much worse, Willumstad figured he’d rather be dealing with an ally in Dimon, even if his colleague felt otherwise.
The AIG executives were escorted to Dimon’s office, which actually consists of an office with a desk, a sitting room, and a conference room. In the conference area Dimon, Steve Black, co-head of the investment bank, Ann Kronenberg, and Tim Main took their places around a wood table with a whiteboard behind them.
After some small talk, Dimon thanked them for coming, and Main, who headed the bank’s financial institutions group, launched into his pitch for why AIG should use JP Morgan. Main pointed out his group’s number one ranking in the latest league underwriting tables and noted its work in helping CIT Group issue two equity offerings worth $1 billion.
“That’s a dubious achievement to cite,” Willumstad later commented to Schreiber, “given that shares of CIT were trading below $10 [in August 2008] when they were more than four times that a year ago.” All in all, however, it was a fairly standard pitch from a Wall Street banker, the kind everyone in the room had heard dozens, if not hundreds, of times before: We’re the best suited to help you, we have the most talent, the most resources; we understand your needs better than anyone else.
But then Main concluded with a not-so-subtle dig at AIG and his past experience with the company. He pointed out that JP Morgan had a lot to offer but stressed that it was important that its clients recognize their own problems and shortcomings. Many in the room, including Dimon, were taken aback.
“Forget Mr. Obnoxious,” Dimon said, cutting Main off. But the damage had been done, and the AIG executives were clearly upset, Willumstad finding the performance annoying while Schreiber thought it was offensive. After a few minutes they shrugged the comment off and resumed their talks with Dimon directly, as an embarrassed Main slumped in his chair.
“Jamie, one of my concerns here is that there’s a higher probability now that we’re going to get downgraded,” Willumstad explained. “The rating agencies promised me they would wait until the end of September, but then the Goldman report came out and they got nervous,” he said, referring to an analyst report issued by Goldman Sachs raising questions about the firm. The report was so influential that Willumstad had received a call from Ken Wilson and Tony Ryan at Treasury to check up on the company.
“Maybe you should just take the downgrade. It’s not the end of the world,” Dimon suggested.
“No, this is not just a downgrade,” Willumstad insisted. As the company had warned in an SEC filing several weeks earlier, a downgrade would be very expensive. If either Standard & Poor’s or Moody’s lowered its rating by one notch, AIG would be required to post $10.5 billion in additional collateral; if both agencies lowered their ratings, the damage would soar to $13.3 billion. As part of its contract to sell credit default swaps, AIG was required to maintain certain credit ratings—or add new collateral to compensate—as insurance against its potential inability to pay out any claims on the swaps. AIG was now a AA-minus company,