Too Big to Fail [76]
Fleming couldn’t imagine what might be important enough to justify the interruption, but given the commotion in the market, he agreed to take the call. Rumors that morning claimed that BlackRock might be a candidate to buy Lehman Brothers; Fink had only encouraged the speculation by appearing on CNBC earlier that day and declaring: “Lehman is not a Bear Stearns situation. Lehman Brothers is adequately structured in terms of avoiding a liquidity crisis.”
The two executives were close—Fink, a fifty-five-year-old financier, had lent Fleming and his banking team office space after the September 11 attacks drove Merrill employees out of their downtown headquarters—and their two firms were now partners, as Fleming had helped broker a 2006 deal to merge Merrill’s $539 billion asset-management business with BlackRock in exchange for a stake of nearly 50 percent in the firm. The deal had vaulted BlackRock, long known as a bond house, into the $1 trillion–asset club and had established Fink, who helped create the mortgage-backed security market in the 1980s, as an even more influential power broker on Wall Street.
“What the fuck is going on?” Fink, nearly breathless with anger, screamed into the phone as soon as Fleming greeted him. “Just tell me what the fuck is going on! How could he do this? How could he do this to me?”
“Larry, Larry,” Fleming tried to calm him, “what are you talking about?”
“Thain!” Fink bellowed, referring to John Thain, Merrill Lynch’s chief executive. “CNBC says he’s putting BlackRock on the block. What the fuck is he thinking?”
“Larry, I know nothing about it,” Fleming replied, genuinely baffled. “When did he say this?”
“In a speech! Today he announces to the whole world that the stake is up for sale. What fucking idiot does that?” Fink shouted, still at the same pitch of fury.
“I didn’t know John was giving a speech, but—”
“We have a lockup, Greg! You know that; John knows. He has to ask my permission. He hasn’t called me—nothing! He has no fucking right to sell BlackRock!”
“Larry, I know we have a lockup agreement. Just take a deep breath and listen,” Fleming urged him.
“Think about it,” Fink continued. “What seller announces to the world he’s selling? Just think about the stupidity of this.”
“As far as I know, no one at Merrill wants to change the relationship we have with you,” Fleming replied. “BlackRock is a strategically critical asset for us. Let me find John, find out what happened, and the three of us will talk this out,” he promised, and ended the conversation.
The only speaking engagement of Thain’s of which Fleming was aware had taken place the previous day, at a conference hosted by the Wall Street Journal; in it, he had made no notable mention of BlackRock. Indeed, Fleming had been impressed with Thain’s objective assessment of the state of the industry during his talk. “Everyone is shrinking their balance sheet. There was too much leverage in the system, too much credit, for too long,” Thain had said, assuming the role of the industry elder statesman. “We all have concerns about what we read in the papers.”
Fleming called Thain’s office but was told that he was away. Fleming knew that Merrill’s balance sheet had continued to deteriorate—it was loaded with subprime loans the company had been unable to get rid of, and it likely needed to raise more money. But Fleming didn’t expect that Thain would actually want to sell BlackRock, which many considered Merrill’s most solid asset. Announcing a sale would only put more pressure on Merrill.
Like Lehman Brothers, Merrill had been struggling with its own crisis of confidence. For the past several months, Thain had repeatedly told investors that the firm had marked—or valued—its assets conservatively and wouldn’t need to raise additional capital. But investors had