Too Big to Fail [188]
Gary Cohn and David Viniar of Goldman greeted them, and escorted them to a conference room. Before the meeting, Cohn had privately told Viniar that if Goldman were to buy a stake in Merrill, the price was going to be a lowball one. “I’m going to be low single digits,” he asserted, a far cry from the $30 a share that Fleming had been hoping to get out of Bank of America. (Cohn didn’t say so at the time, but he was thinking the entire firm’s value might be just several billion dollars; Merrill’s market capitalization on Friday had been $26.1 billion.)
Kraus brought with him the same deck, or presentation, that he had taken to Morgan Stanley. He told the Goldman bankers that Merrill was looking to sell a 9.9 percent stake in the firm and also looking for a $20 billion credit facility.
Before the negotiating even began, Cohn, always blunt, told them: “I’m going to write down your mortgage portfolios to a place where I think they click.” In other words, he was going to value Merrill’s toxic assets at next to nothing.
“I know the way you think,” Kraus replied. “You could put a positive number on it,” he said, hoping that Cohn and Viniar would at least assign some value to the portfolio.
Just as Kraus began digging deeper into Merrill’s balance sheet, Kelly, the only non-Goldman-connected man in the room, stopped him. He was clearly anxious about providing Goldman with too much information. Kraus may have trusted his former colleagues, but Kelly was more circumspect. To him, the odds of pulling off a deal with Goldman were low, and given Cohn’s comments, if a deal did come together, Merrill would be sold for a song.
“Guys, nothing personal, but let’s just lay low here,” Kelly said. “If you want to do due diligence, let us talk to John and let’s figure out what we want to do.”
That was acceptable to Cohn and Viniar, who, in any case, had to get back to the NY Fed. They agreed they’d resume the talks once Kraus and Kelly could get their information in order.
As the meeting was breaking up, Kelly called Fleming to give him a progress report. He said that he and Kraus had made their pitch, but he acknowledged that simply getting a credit line in exchange for 9.9 percent might not be enough to save the firm.
“That’s not going to fill the gap if Lehman goes,” he told Fleming.
“It looks like we may have the outlines of a deal around the financing!” Steve Shafran, a senior adviser at Treasury, announced to Bart McDade and the Lehman team at the NY Fed. Brandishing a huge smile, Shafran told the Lehman bankers that the CEOs downstairs were close to agreeing to funding the spin-off of Lehman’s real estate assets.
The men felt as if an unimaginable burden had been lifted almost instantaneously from them. And McDade excitedly tapped out a message on his BlackBerry to Michael Gelband, who was at Simpson Thacher’s offices.
Standing in a conference room uptown, Gelband read McDade’s message and shouted, “We got it!” he said, a broad grin spreading across his face as he let out a sigh of relief.
Hector Sants, the deputy head of Britain’s Financial Services Authority, was driving along the A30 from Cornwall on the southwestern tip of England back to London on Sunday afternoon with his cell phone clutched precariously between his ear and his shoulder.
Sants had been on the phone for most of the weekend with his boss, Sir Callum McCarthy, head of the FSA and a former Barclays banker himself. McCarthy, at sixty-four years old, had only six days remaining in his tenure in the post and was scheduled to step down that Friday.
Sants and McCarthy had spent hours trying to assess the state of affairs between Barclays and Lehman. Sants had been in contact several times with Varley that day, but McCarthy’s efforts to contact Geithner, his counterpart in the United States, were proving more difficult.