Too Big to Fail [135]
Black had long been bearish on Lehman. At an internal leadership forum at JP Morgan in January 2007, he had predicted: “Dick Fuld will end up selling that company when he has to sell instead of when he should have sold it.” Reminding the group of his earlier prognostication, he announced: “I told you they would be fucked!”
The mood grew more somber, however, as they all realized what an upheaval of that order would mean to them. If Lehman went down—and the government elected not to intervene—JP Morgan itself could suffer colossal losses. Zubrow informed the group that John Hogan, chief risk officer for JP Morgan’s investment bank, had sought more than $5 billion in collateral from Lehman the week before, and again during the weekend, but had received nothing as of yet. Zubrow had also been to see Lehman’s CFO, Ian Lowitt, and put him on notice that JP Morgan was worried about them.
Black suggested that they call Fuld and demand that he send the collateral immediately. Just as important, the group decided that they should probably broaden the collateral agreement so that they’d be able to ask for even more money if other parts of Lehman’s business were to falter.
Everyone agreed that this was the best course of action, so Black and Zubrow slowly rose from their seats and left the conference room. Their faces told the story: It was not going to be a pleasant conversation.
Black dialed Fuld on the speakerphone and when the connection was made immediately explained their plight: “We got, you know, $6 to $10 billion worth of intraday exposure to you, and we don’t have enough collateral,” Black said. He reminded him that JP Morgan had asked for $5 billion the week before.
“We understand that that’s a tough ask for you guys,” he continued, “so let’s spend some time on how we might solve our issue without creating a major issue for you.” In the back of Black’s mind he knew he was being far too generous; he could easily have said, If you don’t, we’ll shut you down tomorrow morning, which we have every right to do.
Initially, it seemed as if Fuld had understood the veiled threat. “Let me get my guys, and we’ll take a look at it,” he said resignedly. Fuld proceeded to conference Lowitt into the call and calmly explained the situation to him. The four men discussed a handful of options that would enable Lehman to provide the collateral. Perhaps Lehman could move all its cash over to JP Morgan and just leave it on deposit, so it wouldn’t count against the firm’s capital?
Fuld tried to turn the call around, using it as an opportunity to ask Black if JP Morgan might be willing to offer Lehman some amount of cash, perhaps in the form of a loan that could be converted into Lehman stock. After all, Dimon had always told Fuld to call if he needed anything.
“We’re getting ready to preannounce tomorrow,” Fuld told Black. “Maybe we need to hold that up for a day if you guys seriously think Jamie would consider doing a convert and taking a piece of us.”
To the JP Morgan bankers, it was a ludicrous suggestion, like someone’s asking the repo man if he had any spare change.
Black looked at Zubrow as if to say, Fuld has lost it, and replied carefully, “I don’t have any ideas, any brilliant ideas off the top of my head, but if you’re telling me you’re at that point where you would consider…that you’re at the point where it’s really getting difficult, then let us still talk and come back and see if there’s anything we can do.”
Five minutes later, after a quick and sober discussion with his colleagues, Black was back on the phone with Fuld.
“Dick, there’s nothing that anybody’s gonna…there’s nothing we can do, and frankly, there’s nothing anybody’s gonna do other than what might be in their own self-interest,” Black explained. “I’m sorry to say this, but my suggestion is to call the Fed and see if they might try and put together a Long-Term