“I’ve known him for fifteen years,” she said. A top executive with IBM, Rometty had once headed the sales group for the computer company’s division that catered to the insurance and financial industries. “I wouldn’t have thought Ed would have been the guy.”
“I know Ed Liddy!” James Orr chimed in. Orr had been chief executive of Unum, a Maine insurer that had fought off an effort by Allstate to grab market share from the company in the long-term disability category it dominated. “If we were looking for a CEO of this company, not only wouldn’t he have been on the short list, he wouldn’t have been on the long list!”
“Well, that’s one of the decisions you’ll have to digest,” Willumstad said calmly, and turned the meeting over to Cohen.
Martin Feldstein, an AIG director and former economic adviser to President Ronald Reagan, couldn’t believe that the government—a Republican administration—was going to be effectively buying a stake in a private business.
Rodgin Cohen, reminding the board that they had a fiduciary duty not only to shareholders but to bondholders as well, pressed for a bankruptcy.
“You should consider all these things,” Beattie said. “Just because it’s the Fed doesn’t mean you have to accept this. You should listen to all the options.”
Willumstad’s assistant slipped into the room and handed him a note: Hank Greenberg is on the phone. He rolled his eyes, leaned over to John Studzinski, and passed him an instruction: “Would you please call Hank Greenberg back?”
Studzinski crept out of the boardroom, aware of just how awkward this call was going to be for him to make. To help smooth the way, Studzinski enlisted Pete Peterson, Blackstone’s co-founder and a longtime friend of Greenberg, to join the call. At Greenberg’s suggestion, AIG had invested $1.35 billion in Blackstone when the firm was flagging in the aftermath of the 1998 Russian debt crisis.
While Studzinski waited on the line, Peterson dialed Greenberg’s office on Park Avenue.
“He can’t talk right now,” Greenberg’s assistant said. “He’s going on Charlie Rose to talk about AIG.”
“You’ve got to be kidding me,” Peterson said.
When Studzinski returned to the board meeting, he passed a note to Willumstad and relayed the news. For a moment, Willumstad smiled.
The board quickly returned to the grim subject at hand. Cohen, offering the pros and cons of the government’s deal, explained the argument for a Chapter 11 bankruptcy filing, saying that the company might do better in an orderly unwinding in court rather than accept the government’s take-it-or-leave-it offer.
Each of the various advisers offered their view. Studzinski said that a bankruptcy filing by a company as large and as complex as AIG would take many months to get under control and that the likelihood was that even more value would be eroded. “I just spent the last ten minutes giving you all the banking reasons to do this,” Studzinski summed up. “But there’s one more,” he said, looking around the room.
“Isn’t twenty percent of something better than one hundred percent of nothing?”
The room fell silent.
As the meeting wore on, Willumstad checked his watch, knowing that he owed Paulson and Geithner an answer quickly.
“Let’s go around the table and let everybody say what you think we should do,” Willumstad instructed. “To be honest with you, I urge you to vote in favor of the Fed proposal,” he told them, starting off. “We have three constituents. Shareholders, customers, employees. This is not something that’s friendly to the shareholders, but it will preserve the customers, keep the company afloat, and you have a better chance these people will keep their jobs.”
As they made their way around the table, all the board members voted in favor of the government deal with the exception of Stephen Bollenbach, the former chief executive of Hilton Hotels. Bollenbach, who was supported by Eli Broad and other major dissident AIG shareholders, had joined the board in January. He thought that a proper judge would give shareholders a fairer deal.
Before the vote was formally tallied, Bollenbach asked a question: Was there any room to renegotiate the terms of the deal?
Willumstad and the lawyers retreated to his office to call Geithner.
“Tim, Dick and Rodge are here,” Willumstad said. “It’s probably appropriate to let me have Dick explain to you the directors’ feelings.”
Leaning in toward the speakerphone, Beattie said, “Tim, the board wants to know whether the terms can be renegotiated. They think eighty percent is outrageous.”
“Terms cannot be negotiated,” Geithner said firmly. “These are the only terms you’re going to get.”
As the three men looked at each other resignedly, Beattie continued, “We have a second question. The board wants to know whether, if the company can come up with its own financing to take the Fed’s place, would that be acceptable?”
Geithner hesitated and then replied: “Nobody would be happier than I if the company, you know, would pay the Fed back.”
Beattie returned to the boardroom and relayed the conversation. The deal was done.
Paulson and Bernanke, after finishing with the president, ran over to the Hill to brief key congressmen, who were none too pleased with the AIG bailout news. Senate majority leader Harry Reid hosted the meeting in his second-floor conference room. The gathering had been hastily organized; some congressmen were invited only twenty minutes before it began. Senator Judd Gregg of New Hampshire, the ranking Republican on the Senate Banking Committee, was supposed to be at a black-tie dinner and showed up in his tuxedo, sans tie. Barney Frank arrived late in an untucked shirt.
Paulson and Bernanke explained why they thought their decision had been a necessary one. “If we don’t do this,” Paulson told them, the impact of an AIG bankruptcy would “be felt across America and around the world.”
Frank, concerned about the cost, looked at Bernanke. “Do you have $80 billion?”
With a barely concealed smile, Bernanke answered, “Well, we have $800 billion.”
Back at JP Morgan, Jamie Dimon and Jimmy Lee were sitting in Dimon’s office when the AIG press release came across the tape. “They’re never going to get their money back,” Lee told Dimon. “There’s no way.”
“I guarantee you they’ll get more than $50 billion of it back,” Dimon shot back, thinking that Washington had just cut itself a good deal, however bad it was from a public relations perspective. “AIG has a lot of good insurance businesses it can auction off. You’ll see.”
Dimon and Lee placed a $10 bet on who would turn out to be right.
Around 11:00 that night, Bob Willumstad’s driver pulled up to his building on Park Avenue, just across from Lenox Hill Hospital. Dashing under its green awning, Willumstad, tired and depressed, rode up the elevator to his seventh-floor apartment. Pacing in his kitchen, he recounted the day’s events to his wife, Carol.
Before turning in for bed, Willumstad checked his BlackBerry one last time. David Herzog, the company’s controller and a man who had been working behind the scenes nonstop for the past weekend to keep the firm afloat, had sent him an e-mail. The time stamp was 11:54 p.m.; the subject line, “Last Steps”:
Thank you for taking on this very difficult challenge. The events that unfolded tonight were set in motion long ago.
Before you leave office, I ask only one thing. Please clean the slate for Mr. Liddy. I urge the following dismissals immediately:
Schreiber
Lewis & McGinn
Nueger & Scott
Bensinger
Kelly
Kaslow