Too Big to Fail [181]
In the end, the men would separately brief Paulson, who, as it happened, was thrilled to hear the news. As far as he was concerned, Barclays was about to buy Lehman, and now Bank of America was talking about acquiring Merrill. It was all coming together.
“I got voice-mail again,” a frustrated Fuld told Tom Russo. “Nobody’s picking up his goddamn phone!”
He could not locate anyone he needed—Paulson, Geithner, Cox, Lewis. Even Bart McDade, his own employee, was unreachable. They were all down at the NY Fed, but no one was taking his call or calling him back.
Fuld wanted an update. He had been in his office all of Saturday, dressed in a blue suit and starched white shirt as if it were a typical work day, but hadn’t heard a word about Bank of America or Barclays.
When the phone did ring, it was Rodgin Cohen, who, calling from the NY Fed, said, “Yeah, we’ve got a problem. I think Merrill and BofA are talking.”
“What do you mean?” Fuld barked.
Cohen explained that he had just left a meeting with Geithner at which he tried to persuade him again that government assistance was necessary to avoid the collapse of the entire banking system. As Cohen recounted it, he had told Geithner: “If you don’t help, Merrill will be gone by Monday.”
Geithner’s response—“We’re working on a solution for Merrill”—had been purposefully vague, but both Cohen and Fuld knew exactly what it meant. It also explained Bank of America’s silence. They both hadn’t forgotten Greg Curl’s comment to them over the summer about how Lewis had always wanted to buy Merrill. And it explained the odd phone call Cohen had received from Merrill’s Fleming earlier in the week, casting about for information.
“I can’t even believe this,” Fuld said, sinking deeper into his chair.
During some downtime at the NY Fed, Gary Cohn and David Viniar of Goldman Sachs greeted their former colleague Peter Kraus, who was now a week into his new job at Merrill.
“Peter, come for a walk,” Cohn suggested, and all three men stepped out the front door onto Liberty Street.
“So, what’s going on?” Cohn asked after they had gone a short way, hinting that he knew that Merrill was under enormous pressure—perhaps more so than anyone in the room.
“We just have a liquidity problem,” Kraus said. “JP Morgan just upped our intraday margin lines by $10 billion.” He paused. “We’re fine, we’re totally fine.”
“Peter, should we be looking at you guys?” Cohn asked.
Kraus looked down before answering. “Yes.” Any deal with Goldman would not just shore up Merrill’s teetering financial position but also would be seen as a vote of confidence by the smartest guys in the room.
“Why didn’t you say something?” Cohn asked. “We’ve been friends forever. We’ve been sitting next to each other for a day and a half.”
As they strolled around the block, Kraus said that it would be worth having a meeting. He said that Merrill would be looking for a credit line to get over the hump of their liquidity crisis in exchange for selling a small stake in the company, probably under 10 percent. It was nearly the same arrangement that Thain had originally been seeking from Lewis.
They agreed to meet the following morning at Goldman Sachs’ offices.
The instructions were specific: Don’t use the main entrance of the New York Federal Reserve on Liberty Street; use instead the employee entrance on Maiden Lane and show your driver’s license to the security guards. Your name will be on a list; an escort will be waiting for you.
Bob Willumstad of AIG and his advisers, Doug Braunstein of JP Morgan, Jamie Gamble of Simpson Thacher, and Michael Wiseman of Sullivan & Cromwell walked over from AIG’s headquarters to meet with Paulson and Geithner, strolling past the photographers and reporters, who, to the bankers’ relief, didn’t recognize them.
“Where do you stand on the capital raise?” Geithner asked without preamble.
Willumstad said that he believed that they were making progress. A half-dozen bidders were still at the building, including Flowers, KKR, and Allianz.