Too Big to Fail - Andrew Ross Sorkin [190]
Geithner had no idea that the FSA would take such an aggressive position and asked McCarthy directly whether the authority was formally saying it wouldn’t approve the deal.
“It is completely impossible for us to take a view on whether these risks are risks that we would accept,” McCarthy replied, unless “you bring a proposal forward.” But, he added, since it was so late in the day—about 3:30 p.m. in London—the chances were remote they’d be able to come to a conclusion within the next several hours.
McCarthy went on to present another problem: He said that Barclays could not guarantee Lehman’s trading obligations without a shareholder vote, which was a UK “listing requirement” for all publicly traded firms in Britain. However, not only was there insufficient time for such a vote, but he said that he wasn’t authorized to waive the vote requirement—only the government could do that.
Geithner explained that, based on his conversations with Barclays, he thought the British government had already indicated it would be supportive of the transaction.
“I have no indication that that is the case at all,” McCarthy said firmly, and then expressed anxiety, as Darling had to Paulson on Friday, about Barclays’ own health and that of the rest of the market.
“Look,” Geithner said impatiently, “we’re going to have to decide in the next half hour what we do. Time is running out.”
“Good luck,” McCarthy said curtly.
Geithner ended the call and rushed into Paulson’s office, where the secretary and Chris Cox were speaking, and recounted the conversation.
“I asked him if he was saying no,” Geithner said, “and he kept saying that he wasn’t saying no.” But clearly, Geithner complained, that’s exactly what he was saying.
Paulson was beside himself. “I can’t believe this is happening now.”
After a brief discussion of strategy, Paulson ordered Cox, who was the only regulator in the room with legal authority over Lehman Brothers, to call McCarthy. Cox, Paulson thought to himself with a sense of annoyance, was supposed to have prewired these very regulatory issues. “I don’t want to be left here holding Herman,” the Treasury secretary said, glancing at his zipper in case the joke wasn’t clear.
Cox reached McCarthy on his cell phone in the living room of his two-story home in Blackheath, across the Thames River. After the FSA head patiently reiterated the problems that the Barclays deal faced, Cox suggested they could try to work around them, adding, “You seem to be very unsympathetic to this.”
“No,” retorted McCarthy coldly, “I’m trying to establish the facts of life so that you understand them and approach this with some realism.”
“You’re being very negative,” Cox insisted.
“Look, you should understand, one of the great problems for us at this end is not actually being properly kept in the loop of what you’re up to,” McCarthy complained, growing increasingly agitated. “You must understand, we’re hearing things late in the day,” he said, ticking off a list of requirements that Barclays would need to meet. “We could have told you earlier which ones would run into problems and which ones wouldn’t.”
Five minutes later Cox returned to Paulson and Geithner, notepad in hand, deathly pale.
“They’re not going to do it,” he said. “This is a total reversal. They never said a word to us about this before!”
Tom Baxter, the NY Fed general counsel, who had just walked in, couldn’t believe what he was hearing. “We’ve come this far, the money’s on the table,” he said in disbelief. “Didn’t they know this when they took the plane over here?”
“I’ll call Darling,” Paulson said.
In Edinburgh, Scotland, Alistair Darling, Prime Minister Gordon Brown’s Chancellor of the Exchequer, was preparing to head to London for the workweek, as he did every Sunday.
It was about 4:00 p.m. local time, and Darling had