Too Big to Fail [244]
“You’ve got to be fucking kidding me,” Scully exclaimed. “We obviously can’t do this deal.”
To make it work, Morgan Stanley would have to raise some $20 billion to $24 billion of equity to capitalize the combined firm, a virtual impossibility under the current market conditions. Even so, the Morgan bankers decided not to cancel the all-day diligence session, as they figured they had nothing to lose. Morgan Stanley might well be able to take advantage of Paulson’s new plan to buy toxic assets from Wachovia and, indeed, investors had already bid up Wachovia’s shares that morning on precisely that expectation.
Thirty people each from Morgan Stanley and Wachovia showed up at Wachtell Lipton’s Fifty-second offices. Wachovia, purposely not using Goldman Sachs as an adviser for this project given its rivalry with Morgan Stanley, brought a new set of advisers from Perella Weinberg Partners: Joe Perella, the legendary financier; and Peter Weinberg, a former Goldman banker who was the grandson of Sidney Weinberg, the Goldman patriarch. As Weinberg came to shake Kindler’s hand, they could hardly believe they were even talking to each other under such dire circumstances. “What happened? How the fuck did we get here?” Weinberg asked aloud.
“God only knows. You can’t make this shit up,” Kindler said.
Within the first two hours of their work, however, something began to feel wrong to the Morgan bankers. Paulson’s TARP announcement had eased the climate of fear at Wachovia—which would likely be a huge beneficiary of the program because it could sell its most toxic assets to the government—and thus the urgency of rushing into a deal. Kindler became concerned that Wachovia was just buying time while the bank worked on another deal, probably with Goldman. Surveying the room, he announced to his colleagues, “Look at us. We’re the B team. This isn’t going to happen.”
The Wachovia team, meanwhile, had its own doubts about Morgan Stanley’s commitment. If this deal was so important to it, where were its top people? David Carroll, who was leading the Wachovia team, couldn’t understand why Colm Kelleher, Morgan’s CFO, was not involved.
By 2:00 p.m., the Morgan Stanley team had withdrawn from Wachtell and gone back to Times Square to consult with Mack.
“These guys are clearly disengaged,” Kindler told him. Scully described Wachovia’s mortgage book as “a $40 to 50 billion problem. It’s huge. The junior Wachovia team is not disputing our analysis.”
Kelleher, who had been keeping a careful watch over the firm’s dwindling cash pile, had just taken a look at Wachovia’s numbers for himself and observed, “That’s a shit-sandwich even I can’t get my big mouth around.”
It became increasingly clear to everybody that the only way this deal was going to take place was if the government provided cover.
Mack, not having heard anything that soothed his nerves, had his secretary get Steel on the line. “You called us and said you wanted to go a hundred miles an hour,” he reminded him, his Southern manners starting to fray, “and I’m sensing from your team that there’s not the same urgency.”
Steel was apologetic. “You’re right,” he told Mack. “We’re not doing this for the next couple of days.”
They agreed they’d get back in touch, but before he hung up, Steel asked Mack for a favor. “It wouldn’t be helpful if it leaked out that we’re not talking,” he said.
“Fortress Goldman.” Tim Geithner had written those two words on a pad on his desk after a Friday afternoon conversation with Lloyd Blankfein, who must have uttered the phrase a dozen times. It was his way of saying he wanted Goldman to remain a stand-alone institution.
Geithner had been concerned that Blankfein didn’t appreciate how perilous his situation actually was and had quizzed him about the firm’s financial health. Blankfein had said he was hopeful that Goldman would