Too Big to Fail [138]
Wieseneck then opened up the meeting to questions, and almost immediately became annoyed by the sheer volume of them posed by the JP Morgan bankers—most of which had nothing to do with helping Lehman raise capital. “How big is the book? What assumptions are you using around the models?” Hogan asked. “It sounds like you probably need some capital to make this whole thing work.” The Lehman representatives didn’t have any answers, suggesting that he get in touch with their CFO.
To Wieseneck it was obvious that what the queries were really about was determining Lehman’s liquidity position: whether counterparties were trading with it and the status of its cash position. These were all legitimate concerns that any prudent investor might have, but in this case, Wieseneck and Whitman suspected that they were intended more as a means to protect JP Morgan. Shedlin’s questions, in contrast, were directed at various possible structures of deals that could help Lehman, but he was getting drowned out by the other bankers around the table.
The one point on which bankers from both sides agreed was that Lehman should not announce its SpinCo plan unless it could identify the exact “hole” that it needed to fill—that is, how big a capital infusion was necessary. “You don’t know how much money you’re going to need,” Hogan told them. “By going out and announcing this, you’d only add uncertainty to the market,” he warned. “You’d get crushed.”
Shedlin was even blunter. “Look, we think it’s very dangerous for you guys to lay out a strategy with a SpinCo where people basically will conclude that you guys still have a very significant capital hole,” he said. “Going out with a story that suggests you have a big capital hole and no solution to raising it is only gonna put you at the mercy of the market even more.”
As the meeting broke up, two messages were clear as day to Wieseneck and Whitman. The first: Forget about announcing the plan, but if you feel you must do so, be very careful about talking about raising new capital and don’t get pinned down to a specific number.
It was the other, however, that made them appreciate the true depth of their predicament: You’re on your own. None of the banks volunteered to offer any new credit lines.
As soon as Braunstein and Hogan left the building and crossed Lexington Avenue, they called Jamie Dimon and Steve Black.
“Here’s the story,” Hogan said, virtually shouting into his cell phone. “I think these guys are fucked.” They proceeded to walk Dimon and Black through all of the details of what Lehman was preparing to announce the following day.
“We have to go back and tie everything up and line up all of our contingent risks,” Hogan insisted. “I don’t want to take a hickey on this.”
From the Bank of America headquarters in Charlotte, North Carolina, Greg Curl dialed Treasury’s Ken Wilson, who was still in his office, frantically fielding calls. Wilson had been expecting to hear from Curl, notifying him that he was getting on a plane to New York to begin his due diligence on Lehman.
Curl, however, was phoning with very different news. “We’re having an issue with the Richmond Fed,” he explained. Jeff Lacker, the president of the Federal Reserve of Richmond, Bank of America’s regulator, had been concerned about the bank’s health and had been putting pressure on it to raise new capital ever since it had closed its acquisition of Countrywide in July. As the official overseer of banks in Virginia, Maryland, North Carolina, South Carolina, the District of Columbia, and part of West Virginia, the Richmond Fed wielded considerable power through its regulation of capital reserves.
“They’ve been screwing around,” Curl complained to Wilson, who was hearing of this for the first time. Curl told him that at the time that Bank of America was considering acquiring Countrywide back in January—a purchase that the government had quietly encouraged to