"Your Highness, we are now competitors..."
Barron's old acquaintance, Rolf, was representing Barclays in the acquisition negotiations with Lehman Brothers.
Shortly after Barron's rebirth into this world, when he was resolving the Devonshire family's debt, Rolf was the credit officer at Barclays he had initially dealt with.
Later, through Rolf, Barron developed a deep partnership with Barclays, a process that dramatically increased Barron's wealth.
Rolf's position also continued to rise, and he was now a Vice President at Barclays, specifically responsible for the current acquisition negotiations with Lehman Brothers.
After hearing Rolf's words, Barron smiled and said,
"Although it may appear that we are competitors in this acquisition, nothing is absolute. We can also be partners."
"What do you mean?"
"Wall Street's messes should be cleaned up by Wall Street, but now we're here as allies. However, sometimes being too proactive doesn't necessarily get you noticed..."
Barron looked at Rolf and said,
"Just remember, I'm not your competitor."
During Barron's meeting with Rolf, Bank of America announced it was abandoning its acquisition of Lehman Brothers due to the Federal Reserve's refusal to provide financial assistance.
The only remaining acquirers were Standard Chartered and Barclays, two British banks, which became Lehman Brothers' lifeline.
"You've probably noticed that, despite our sincere interest in acquiring Lehman Brothers, they're still acting with impunity during the negotiations..."
Baron's words resonated with Rolf, who couldn't help but grumble,
"That greedy bastard, Fuld, isn't just being aggressive with us. Wasn't he also doing the same with the Korea Development Bank? He's convinced the US government won't let a massive investment bank like Lehman go bankrupt and will inevitably bail them out. That's why he's been so tight-lipped about the price. But how could we possibly offer a multiple of that premium?"
Indeed, the US government had ultimately bailed out companies and banks like Fannie Mae and Freddie Mac, as well as Bear Stearns. So, confident that Lehman Brothers would eventually be rescued, Fuld, its owner, held firm on his price in the acquisition negotiations.
"That's what he thinks..."
Baron said to Rolf calmly,
"but is that really the case?"
"You mean... how could that be possible?"
Rolf's eyes widened at Baron's words.
...
July 12th, Saturday.
Although it was the weekend, given Lehman Brothers' current situation, if they couldn't reach an acquisition agreement, they would likely declare bankruptcy by Monday.
That day, Standard Chartered Bank's negotiators began final negotiations with Lehman Brothers. If they couldn't reach an agreement today, Lehman Brothers would have to negotiate with Barclays. Standard Chartered was the only bank willing to acquire Lehman Brothers in an all-cash deal, not a stock swap, and was willing to acquire the entire company, rather than divesting its non-performing assets. Therefore, Lehman Brothers decided to negotiate with them first. The negotiations lasted
until 2:00 PM, when both parties finally reached an agreement on the key terms of the acquisition. As they were about to sign the agreement, a Standard Chartered Bank representative, after taking a phone call, returned to the negotiation room and told the Lehman Brothers team,
"We're sorry, but this agreement can no longer be worked on. Our board of directors has informed me that negotiations are halting and we will terminate the acquisition."
Time went back to a day earlier...
At 8:00 PM on Friday, July 11th, a crucial meeting concerning global economic security was underway in the New York Federal Reserve boardroom.
Attendees at the meeting included representatives from Goldman Sachs, Merrill Lynch, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of New York Mellon, as well as Credit Suisse, BNP Paribas, Royal Bank of Scotland, and UBS.
Also present were Treasury Secretary Henry Paulson and SEC Chairman Cox.
New York Fed President Timothy Geithner was the primary convener of the meeting, with a single goal: to reach a deal to rescue Lehman Brothers.
However, neither Lehman Brothers nor its potential acquirers, Standard Chartered and Barclays, were invited.
"Thank you all for arriving on such short notice." Treasury Secretary Paulson spoke first, briefly outlining Lehman Brothers' precarious situation and urging a solution by the end of the week.
To emphasize the key to the solution, Paulson bluntly stated,
"Don't count on government funding. You are the ones who have to solve this problem. If Lehman didn't exist, our lives would be much more difficult. You should take action."
That morning, Paulson and Federal Reserve Chairman Ben Bernanke had breakfast together, where they exchanged views. Both sides expressed their desire to avoid a chaotic Lehman collapse and encourage the private sector to resolve its own problems.
Bernanke, however, was puzzled by Paulson's hawkish stance. He speculated that Paulson, frustrated by the rescue of Fannie Mae and Freddie Mac, didn't want to be seen as the face of a Wall Street bailout.
New York Fed President Timothy Geithner then stated that the Fed would not provide "extraordinary credit support."
He addressed the leaders in a tone bordering on menace:
"If you can't find a solution, panic will spread as soon as the market opens next Monday. A localized problem will turn into a catastrophe, and the entire financial system will be in danger."
Paulson and Bernanke were tightening their belts in an effort to pressure Wall Street giants into providing a bailout for Lehman Brothers, after all, they had caused the disaster.
However, their opponents preferred the Treasury or the Federal Reserve to intervene, and some viewed Paulson's threats as a strategic maneuver.
A complex power struggle between power and interests was intensifying.
In the hours before the meeting, the financial giants were hesitant to express their views, as they still didn't know Lehman's true financial situation.
Next door, Paulson appointed a team of Goldman Sachs and Credit Suisse to assess Lehman's true assets.
The team's lawyers, auditors, and accountants were thoroughly examining Lehman's books.
Treasury Secretary Paulson, infuriated by the group's passive attitude, said,
"This is a matter of national economic security. I will remember those who don't contribute."
He then ordered the meeting to resume at 9 a.m. the following morning.
The next morning, just as Standard Chartered and Lehman Brothers began final negotiations, the accounting team released their assessment.
They concluded that Lehman's current assets were worth 40% or even less.
This result shocked everyone present, and immediately cast pessimism on the acquisition.
Bernanke even suspected that Goldman Sachs had deliberately understated the figures, exaggerating the risks.
Geithner explained to Bernanke that this was possible; the combined valuation by Goldman Sachs and Credit Suisse was significantly lower than Lehman Brothers's own claims, making it difficult for the market to trust the company.
The government, including Paulson and Bernanke, was hoping that Wall Street firms would collectively provide financial support or guarantees to assist Standard Chartered or Barclays in acquiring Lehman Brothers. If
neither bank was willing to take over, a collaborative mechanism could be adopted, leveraging the strength of the entire financial industry to prevent a chaotic collapse of Lehman Brothers.
This was similar to the rescue of Long-Term Asset Management of America a decade earlier.
However, Bernanke overlooked a fact: ten years ago, when they jointly rescued Long-Term Asset Management, Lehman Brothers initially wanted to withdraw a penny and was later forced to contribute $100 million, $150 million short of their original commitment.
...
Upon hearing Standard Chartered Bank's representatives announce the termination of the acquisition, the Lehman Brothers negotiating team was devastated.
They later learned that Standard Chartered was simultaneously negotiating with the equally troubled Merrill Lynch—and that Merrill Lynch had made Standard Chartered an "irrefutable offer."
Neither Lehman Brothers nor Standard Chartered attended yesterday's meeting. The Merrill Lynch representatives who did, judging by the attitudes of Paulson and Bernanke, understood that this time the government would likely not offer a "bottom-up" bailout, as they had with Fannie Mae and Freddie Mac and Bear Stearns.
Under these circumstances, Merrill Lynch, similarly precariously situated, became one of the few remaining potential buyers, and they were already in contact with Lehman Brothers.
You know, the entire meeting yesterday evening was focused on Standard Chartered Bank acquiring Lehman Brothers, and the Treasury and the Federal Reserve showed no sign of any intention to provide a bailout.
Under these circumstances, Merrill Lynch CEO Sirn showed a strong will to survive. He decisively intervened, urgently contacted Standard Chartered Bank, and clung to the financial backer with a "fire sale."