Too Big to Fail [225]
Given that no one at Treasury was allowed to talk to Bob Steel now that he had become CEO of Wachovia, worrying about that firm had become Warsh’s responsibility. And he increasingly had more to worry about: as a former deal maker himself, he knew that Wachovia, too, needed a partner desperately and he just might to have play the role of matchmaker. There was no way the bank would make it on its own, he thought.
But like Paulson with Goldman, Warsh had his own conflict-of-interest problem with Morgan Stanley, so he sought out Scott Alvarez, the Fed’s general counsel, and requested a letter clearing him to make contact with his former employer, based on an “overwhelming public interest.”
Warsh contacted Steel and instructed him to call Mack in twenty minutes, which left him enough time to give Mack a heads-up.
Warsh then called Geithner and asked, “Do you want me to call John? Or do you want to call John?”
They decided to call him together.
Despite its terminal illness, Lehman Brothers was bustling with activity. Legions of sleep-deprived, depressed traders, lawyers, and other employees were still working the phones and doing what they had to do before closing up the shop. Fresh on their minds was the memo that Dick Fuld had sent out the previous night: “The past several months have been extraordinarily challenging, culminating in our bankruptcy filing,” he wrote. “This has been very painful on all of you, both personally and financially. For this, I feel horrible.” To some angry employees, it was an extraordinary understatement that called to mind Emperor Hirohito’s famous surrender broadcast on August 15, 1945, when he told a stunned nation that “the war situation has developed not necessarily to Japan’s advantage.”
But later that day, Bart McDade, Skip McGee, and Mark Shafir, working off of four hours’ sleep in three days, were able to announce a welcome bit of good news: Though it was far too late to save the entire firm, Lehman had an agreement to sell its U.S. operations for $1.75 billion. The buyer was Barclays, Lehman’s onetime would-be savior, which ended up getting the part it wanted without having to acquire the whole firm. The deal would allow at least some of Lehman’s ten thousand employees in the United States to keep their jobs.
As McDade, McGee, and Shafir walked the floors, some employees stood up to applaud.
Mack knew what Bob Steel was calling about, and he was happy to speak with him. Both men were graduates of Duke and members of the university board, and not long after Steel had taken over at Wachovia, Mack had gone down to see him in Charlotte, to pitch Morgan Stanley as an adviser. No business had come out of the meeting—the bank had Goldman to help them sort through the Golden West quagmire—but the men realized they spoke the same language and agreed to stay in touch.
“Very interesting times,” Steel now said. “I imagine you’ve already heard from Kevin. He told me he thought we should connect.”
Steel went on, intentionally keeping the discussion vague until he gauged Mack’s intentions. “There might be an opportunity for us. We’re thinking about a lot of things. I think this could be the right time to talk. But we’d need to move fast.”
“I could see something,” Mack replied, intrigued but noncommittal. “What’s your timing?”
“We’re moving in real time,” Steel said.
Considering the meltdown in the markets, Mack thought it was at least worth talking. For Steel, a Morgan Stanley deal happened to be both commercially and personally attractive. All the