Too Big to Fail [144]
He took the last-minute overnight return flight to London to resolicit support to buy Lehman. He would have to win over Varley and the board—and do so quickly.
Varley was a model of the conservative Englishman and had married into one of the bank’s founding Quaker families. Soft-spoken and courtly, he wore suspenders every day, listed table tennis and fishing as his hobbies, and had far less tolerance for risk than Diamond. Whatever his own professional predilections, however, Varley had always given Diamond a long leash, even if he did maintain a quiet uneasiness with his colleague’s appetite for deal making.
The two men had long had a complicated relationship, having both vied for the top job in 2003. Although Varley won the position, Diamond was paid nearly six times what Varley, his superior, made. (In 2007, Diamond earned $42 million to Varley’s $8.4 million.) For years, Diamond had avoided taking a seat on the Barclays’ board to avoid disclosure of his compensation agreement, which would have landed him squarely in the pages of the British tabloids as a “Fat Cat.” Despite his title, Diamond was to many the de facto CEO. In 2006 a Dresdner Kleinwort analyst wrote a report provocatively titled “Bob Diamond 3, John Varley 0.”
As soon as the Lehman call came to an end, the Barclays executives discovered they were in agreement: They’d make a play for the firm. But only—Varley reiterated the point—if they could get it for a song.
Diamond went back to his office and phoned Bob Steel at his new number at Wachovia. “Remember our conversation about Lehman?” he asked.
“Of course,” Steel answered.
“Well, we’re now interested.”
Lehman’s stock may have temporarily stabilized after the earnings call, but only hours later Fuld was faced with a new problem: Moody’s Investors Service announced that it was preparing to place Lehman’s credit rating on review, warning that if the firm did not soon enter into “a strategic transaction with a stronger financial partner,” it would cut its rating.
Fuld decided to call John Mack, CEO of Morgan Stanley; he needed options. And, unlike his relationships with Ken Lewis and Lloyd Blankfein, he actually trusted Mack.
“Listen, I really need to do something,” Fuld told him. “Let’s do something together.”
Mack had always genuinely liked Fuld and was concerned by the stress he could now hear in his voice. But he had no interest in entering into a deal and wondered if Fuld was deluding himself by even making the call.
“Dick, I want to help, but it just doesn’t make any sense. We’ve talked about this before,” Mack said, reminding him of the meeting they had had at his house over the summer. “There’s so much overlap.”
After getting off the phone, however, Mack continued to think about the possibility of a deal with Lehman and found that he was intrigued. His initial impulse about its unfeasibility may have been correct when Lehman’s stock was trading at $40 a share, but given its current price, a deal might well be financially attractive.
“I’ve been thinking,” he said, after calling Fuld back. “I agree with you. We should talk.”
After Fuld thanked him for reconsidering, Mack paused a moment and then said firmly, “Dick, I’m a very straightforward guy. I really like you, but let’s be clear, this is not a merger of equals. Only one person can run this. We have to get that up front now.”
After an awkward silence, Fuld finally responded, “I wasn’t thinking that way,” and then, after another brief hesitation, added, “Let me think about it. I’ll call you back.”
Twenty minutes later Fuld was back on the phone.
“Look, you’re right,” he said, the toll that recent days had taken shading his voice. “I want to do the right thing. Let’s see what can be done.”
Fuld suggested that they set up a meeting between the senior managements of both