Too Big to Fail [194]
Mack just shook his head. “This is bizarre.”
Over at AIG, Chris Flowers, taking a break from working with Bank of America, had stationed himself at one of the secretarial desks in the hallway, waiting to meet with Willumstad. Accompanying him was Dr. Paul Achleitner of Allianz; together they had prepared an offer for the company.
When they were invited into a conference room, they found Willumstad there with Schreiber and a group of his advisers, including Doug Braunstein from JP Morgan, Michael Wiseman from Sullivan & Cromwell, and several others.
“We have an offer,” Flowers announced, producing a one-page term sheet that he handed to Willumstad.
Flowers, who hadn’t yet heard about the additional $20 billion hole that JP Morgan’s bankers had discovered, explained that he had put together a deal that valued AIG at $40 billion. (The company’s actual market value on Friday had been about $31 billion.) Given the company’s problems, he asserted, it was the best estimate he could come up with quickly.
He then spelled out the rough terms: His own firm and Allianz would put up about $10 billion of equity—$5 billion each—and they planned to raise $20 billion from banks; they would also sell $10 billion of assets. The investment they’d be making would be directly in AIG’s regulated subsidiaries, but they’d gain control of the parent company. That condition was a move to protect Flowers and Allianz: If the parent company were to falter, they’d still own the subsidiaries. Finally, Flowers said they would have to be able to convince the Federal Reserve to turn AIG into a broker-dealer, so that it had the same access to the discount window that investment banks like Goldman Sachs and Morgan Stanley had.
Before ending his presentation, Flowers added that he had one other term that hadn’t been noted on the deal memo: “Bob, we would replace you as CEO.”
The silence that greeted the offer reflected the fact that Willumstad and his advisers thought the bid had to be a joke—not because Flowers had the audacity to tell Willumstad that he would be fired, but because the deal was also filled with potential pitfalls; Flowers was putting up scarcely any of his own money, and he hadn’t lined up 80 percent of the funds needed to do the deal. They also thought the price ludicrously low. In their minds the company was worth at least twice that.
“That’s fine,” Willumstad said calmly. “We have an obligation, we’ll take it to the board, but I have to tell you, you know, you’ve got contingencies in here that none of us can agree to,” he said, referring to the need for Flowers to still receive bank financing. “Thank you,” Willumstad said and stood, trying to get them to leave as quickly as possible. As soon as Flowers departed the room, Achleitner closed the door and took his seat again.
“I don’t approve of what he just did,” Achleitner said, almost whispering.
“Well, you read the letter before you came,” Willumstad said, his temper in check.
“No, no, no, that’s not how we do business,” Achleitner said apologetically.
“Okay. Whatever,” Willumstad responded. “Thank you very much.”
When the entire group had finally left, Willumstad turned to Schreiber and whispered, “Don’t let those guys back in the building!”
For a brief moment Dick Fuld allowed himself to smile. Ian Lowitt, Lehman’s CFO, had just gotten word that the Federal Reserve was planning to open the discount window even wider, a move that would enable broker-dealers like Lehman to pledge even more of their assets—including some of their most toxic assets—as collateral in exchange for cash.
“Okay, here we go!” Fuld said, believing they might be able to hang on a bit longer as they sorted out their options.
“This is great, great news,” Lowitt said, already tallying in his head the tens of billions of dollars of real estate assets he thought they might be able to pledge to the Fed. “We have enough collateral!”
“Lehman’s got to file immediately,” Paulson, leaning back in his chair, instructed