Too Big to Fail [203]
Just got off the phone with Amy Brinkley. She says that a deal with Merrill is solidified except for a few legal details that need to be worked out. Both boards have approved the deal, and once the legal issues are finalized, they will make an announcement….
Amy indicated that BAC management feels a much higher level of comfort with Merrill than it did with Lehman, specifically with the value of the franchise and the marks on the assets. While Amy acknowledged that it may look to the outside world as if BAC is paying a bit of a premium for Merrill, BAC’s estimates of Merrill’s asset values indicate they are getting the firm at a 30–50% discount. Chris Flowers, the prominent private equity guru, has done extensive due diligence on Merrill over the past few months for potential equity investors, and I got the impression that BAC is at least partially relying on this work.
Will pass along more details as we get them.
After Chris Flowers left AIG, heading for a walk around Trinity Church at the intersection of Broadway and Wall Street, he decided to check in with Jamie Dimon, hoping to get some insight about the status of his bid for AIG, which he had left with Willumstad in the afternoon.
“What are you hearing?” Flowers asked. “Willumstad hasn’t told us shit.”
“You know, I think you pissed them off,” Dimon told him.
“Okay. I don’t know why, but I guess we did,” he said, and hung up.
As he walked back to 70 Pine Street, he took a moment to marvel at the huge takeover of Merrill on which he had just worked. With all the time he had been spending on AIG, it seemed almost like an afterthought. In the end, he hadn’t gotten a piece of the Merrill deal, but that hardly mattered. During the weekend’s insanity, his firm and Fox-Pitt Kelton, a boutique investment bank, had each been paid to write BofA a “fairness opinion.”
A fairness opinion is usually touted as an independent, unconflicted seal of approval for a deal. But on Wall Street, they are often seen as little more than paid rubber stamps. In this case the situation was even more complicated, not only because Flowers himself had considered taking part in the Merrill deal, but because Flowers’s firm also owned Fox-Pitt Kelton.
For their troubles, Flowers and Fox-Pitt would earn a combined $20 million in fees, $15 million of which was contingent on the conclusion of the deal. Not bad for less than a week’s work.
Ruth Porat of Morgan Stanley had gone over to the apartment of a friend, a Lehman executive, to console her. Just as they were pouring a glass of wine to commiserate, she took a call from Dan Jester, her pal from Treasury, with whom she had just worked for over a month on Fannie and Freddie.
“I need your help,” he told her. “You’re not going to believe this, but we think AIG may go into bankruptcy this week. I’m wondering if we can reconvene the team to focus on AIG.” In this case, the assignment would be to work on behalf of the Federal Reserve. He told her that he’d like Morgan Stanley to pull a team together and be down at the Fed in the morning.
“Hold on, hold on,” Porat said in disbelief. “You’re calling me on a Sunday night saying that we just spent the entire weekend on Lehman and now we have this? How the fuck did we spend the past forty-eight hours on the wrong thing?”
The drive home was excruciating; Fuld sat in the backseat feeling paralyzed. Gone was the bluster, the gusto, the fight. He was still angry, but really, he was just sad. For once, it was completely quiet except for the hum of the engine and the tires rolling down the highway. He had stopped looking at his BlackBerry.
By the time his Mercedes rolled into his driveway, it was 2:00 a.m. His wife, Kathy, was waiting up for him in bed. He slowly walked into his bedroom, still in a state of shock. He hadn’t slept in days; his tie was undone and his shirt wrinkled. He sat down on the bed.
“It’s over,” he said mournfully. “It’s really over.”
Looking on solemnly, she said nothing as she watched his eyes well up. “The Fed turned against us.”
“You did everything you could,” she assured