Too Big to Fail [248]
Tim Geithner hadn’t slept well on Friday night, having decided to stay in one of the grim rooms on the twelfth floor of the Federal Reserve. By 6:00 a.m., he had returned back upstairs to his office dressed in an oxford dress shirt and sweat pants, and began puttering around the hallways in his stocking feet.
In his mind, he was already making battle plans. He had made it safely to the weekend, but he already was worried about what would happen on Monday if he didn’t find a way to save Morgan Stanley and Goldman Sachs.
“John’s holding on to a slim reed,” Paulson had told Geithner about John Mack’s perilous position on a phone call the night before. They had heard that Morgan Stanley had only about $30 billion to $40 billion left, but Paulson was also still anxious about Goldman Sachs, his former employer. “We’ve got to find a lifeline for these guys,” said Paulson, and they reviewed the possible options.
On a pad that morning, Geithner started writing out various merger permutations: Morgan Stanley and Citigroup. Morgan Stanley and JP Morgan Chase. Morgan Stanley and Mitsubishi. Morgan Stanley and CIC. Morgan Stanley and Outside Investor. Goldman Sachs and Citigroup. Goldman Sachs and Wachovia. Goldman Sachs and Outside Investor. Fortress Goldman. Fortress Morgan Stanley.
It was the ultimate Wall Street chessboard.
Lloyd Blankfein arrived at his office at just past 7:00 on Saturday morning. Even though he was still pushing his “Fortress Goldman” bank holding plan, he and Gary Cohn had assigned more than a half dozen teams to start investigating different deals: HSBC, USB, Wells Fargo, Wachovia, Citigroup, Sumitomo, and Industrial and Commercial Bank of China.
Cohn had had another conversation with Kevin Warsh of the Federal Reserve on Friday, who encouraged him to keep looking at merger options, especially at Citigroup. While it had never been made public, Goldman had explored the idea of merging with Citigroup several times over the past eighteen months but had never engaged in formal talks. Cohn and Warsh had discussed the possibility at least twice before, and even though Cohn always resisted the idea, he was intrigued.
Initially Cohn’s notion was that Citi should buy Goldman; he had even established an asking price. But Warsh suggested that Cohn approach it the other way around: Goldman should be the buyer. To Cohn that made no sense given that Citi was so much bigger. But what Warsh knew—and hadn’t yet shared with Cohn—was that Citigroup’s balance sheet had so many holes that its value was likely a lot lower than its current stock price.
As a result, the Fed was considering three possible outcomes for Citi, code-named “NewCo,” “Goldman Survivors,” and “Citi Survivors.”
Blankfein was reading an e-mail when John Rogers, the firm’s chief of staff, arrived. Blankfein pressed a secret button under his desk to open remotely the glass door to his office. (Paulson had installed the Inspector Gadget–like device when he was Goldman’s CEO.)
As he and Rogers were reviewing their own battle plans, Geithner called. In his usual impatient tone, he insisted that Blankfein immediately call Vikram Pandit, Citigroup’s CEO, and begin merger discussions. Blankfein, slightly shocked at the directness of the request, agreed to place the call.
“Well, I guess you know why I’m calling,” Blankfein said when he reached Pandit a few minutes later.
“No, I don’t,” Pandit replied, with genuine puzzlement.
There was an awkward pause on the phone. Blankfein had assumed that the Fed had prearranged the call. “Well, I’m calling you because at least some people in the world might be thinking that combining our firms would be a good idea,” he said.
After another few moments of uncomfortable silence Pandit finally replied, “I want you to know I’m flattered by this call.”
Blankfein now began to wonder if Pandit was putting him on. “Well, Vikram,” he said briskly, “I’m not calling with any flattery towards you in