Too Big to Fail [246]
Warsh listened to the proposal and, almost to his own surprise, liked it.
Gao Xiqing, dressed in a sporty turtleneck and blazer, arrived at Morgan Stanley with his team just after 9:00 p.m., having flown into New York with Morgan Stanley’s Wei Sun Christianson on a private jet from Aspen. He had been on a panel that afternoon with Carlos Slim, the Mexican billionaire, at Ted Forstmann’s gathering and had asked the moderator, Charlie Rose, to make certain the session didn’t run long so that he could reach the airport in time. Given the rumors in the newspapers, everyone at the panel knew exactly where he was headed.
Gao’s back was causing him so much pain that when James Gorman first went to introduce himself, he found Gao lying on the floor of a conference room on the fortieth floor, in the middle of a telephone call. Mack, ever the accommodating host, had a couch brought from the executive dining room for his guest to lie on.
Over dinner, ordered in from Mack’s favorite restaurant, San Pietro—again—they discussed a possible transaction. Alternating between standing up and lying down, Gao reiterated his interest in buying 49 percent of Morgan Stanley.
As he had told Christianson on the flight over, he now indicated that he was prepared to provide the firm with a credit line of as much $50 billion and a nominal equity investment—no more than $5 billion, maybe less.
Mack was stunned. He had known the price that would be offered might be low, but to him this was absurdly so—it was effectively merely a loan. While it might help Morgan Stanley stay in business, Gao was clearly taking advantage of its weakened condition. To Gao, the offer presented a way to reset the price he had paid for the 10 percent stake he had acquired in Morgan Stanley in 2007, which was now worth far less. Unlike deals that other sovereign wealth funds had struck then, giving them the right to reset the value of the deal if the firms sold equity at a lower price later, CIC hadn’t had the presence of mind to insist on that stipulation. For some inexplicable reason, Gao had convinced himself that the agreement did include such a provision until Morgan Stanley got him a copy to show him that it didn’t.
However insulting Gao’s proposal, Mack recognized that his situation was desperate. Despite the market rally, the firm had continued to bleed cash. Kelleher had given him the cash balances and they were not good—about $40 billion in the tank. A few bad days could wipe them out, and most days lately had been bad ones.
Without many other options, Mack told Gao the firm would open its books to him. Gao had hired Sullivan & Cromwell’s seemingly omnipresent lawyer, Rodgin Cohen, as well as Deutsche Bank, to advise him, and both companies were already sending over teams to assist the Chinese. A sheet of paper marked “CIC” was affixed to the conference room door that would become Gao’s temporary office. Mack also had a physical therapist summoned to work on his bad back.
When Mack returned to his office and huddled with Christianson and his team, they were flabbergasted; Chammah initially thought he had misheard Christianson when she presented it.
“That’s a ludicrous ask,” Kelleher said. “They are being unreasonable.”
Gorman, trying to calm everyone down, said they should all hope it might just be an opening salvo: “They ask for the moon and then maybe they get more reasonable?”
It was just past midnight, and Courtroom 601 of the courthouse at One Bowling Green in Lower Manhattan was still packed with people standing shoulder to shoulder.
The occasion was the approval of the sale of Lehman Brothers to Barclays by a bankruptcy judge. While the rest of the world had already moved on to the fates of Morgan Stanley and Goldman Sachs, ten thousand Lehman employees’ jobs still lay in the