Too Big to Fail - Andrew Ross Sorkin [278]
But first they needed the money to effectuate such a guarantee program, which is where Bair came in. They felt that the FDIC was the only agency with such powers, and that the guarantee would fall within the agency’s mission.
Paulson and Bernanke, sitting in Paulson’s office, now walked Bair through the concept. The FDIC, they explained to her, would essentially be offering a form of insurance for which the banks would pay by being assessed a fee. The FDIC, Paulson argued, could even end up making money if the assessments outweighed the amount of payouts.
Bair instantly recoiled, doing the math in her head to assess the extraordinary strain such a guarantee could put on the FDIC’s fund.
“I can’t see us doing that,” she replied.
Morgan Stanley’s Walid Chammah woke up Saturday morning deathly afraid that his firm was going to go out of business. Its stock price had continued to fall, closing on Friday at $9.68—its lowest level since 1996. Hedge funds and other clients were again pulling money out. Dick Bove, an influential analyst at Ladenburg Thalmann, was comparing Morgan Stanley to Lehman Brothers and Bear Stearns. “The focus on Morgan Stanley is to change the ending,” Bove wrote in a note to clients. “In sum, one must hold one’s breath at the moment and hope that this is a different movie.”
Chammah had canceled a talk he was scheduled to give at Duke’s business school so he could stay in New York to try to shore up morale at the firm. That Friday he walked every floor in Morgan Stanley’s headquarters, stopping to reassure fretful employees and giving a speech on the trading floor. “This firm has been around for seventy-five years and will be around for another seventy-five years,” he proudly told the traders. To work his way down from the fortieth floor to the second took him three and a half hours. When he got back to his office he was emotionally drained, practically in tears.
It had been a difficult day for one other reason: Rumors were by now rampant that Mitsubishi was going to renege on its deal. No one at Morgan Stanley had received the slightest indication that they were even thinking of doing so—indeed, Mitsubishi had confirmed that they intended to honor the commitment—but the uncomfortable truth was that withdrawing might actually be the right business decision.
“They’re going to recut. They just have to,” Robert Kindler told Paul Taubman that afternoon. “When are they going to call? It’s a nobrainer.”
And everyone inside Morgan Stanley knew what Mitsubishi pulling out would mean: a run on the bank all over again, and, just possibly, the end of the firm.
With Mack flying back from London that day, it had been left to Chammah to hold the firm together in the face of that anxious speculation. His wife, who had been watching the financial news on television, called him at the office. “Are you okay?” she asked.
“I’m fine,” he said serenely, trying not to betray his concern.
“You are too, too calm,” she observed. “Are you taking Valium or something?”
Chammah had planned to go to Washington early on Saturday for a series of meetings with Mack and the G7 leaders, but decided to remain in New York throughout the morning in case there was any word from the Japanese. At noon, sufficiently satisfied that if they were going to drop the deal they would have contacted him by now, he headed to LaGuardia to hop a Delta shuttle. As he was walking down the jetway, his cell phone went off. Oh, shit, Chammah thought, here it comes.
The call was indeed from Mitsubishi’s banker, but to Chammah’s surprise they reaffirmed their intention to go forward with the deal—but did add that they wished to renegotiate for more favorable terms that would give them preferred shares instead of common ones.
“Are you still prepared to close on Monday?” Chammah asked.
The answer was yes. A smile came over Chammah’s face. For a moment, the deal maker in him injected, “Is there a reason for $9 billion? Could it be larger?” In other words, he was asking if, since they were reopening the negotiations