PORTFOLIO Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd, 80 Strand, London WC2R 0RL, England Penguin Ireland, 25 St Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd) Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd) Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi-110 017, India Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd) Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England First published in 2009 by Portfolio, a member of Penguin Group (USA) Inc Copyright © Kate Kelly, 2009 All rights reserved LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA Kelly, Kate Street fighters : the last 72 hours of Bear Stearns, the toughest firm on Wall Street / by Kate Kelly p cm Includes index eISBN : 978-1-101-05705-6 Bear, Stearns & Co Investment banking—United States Bank failures—United States Financial crises—United States I Title HG4930.5.K45 2009 332.660973—dc22 2009007694 Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law Please purchase only authorized electronic editions and not participate in or encourage electronic piracy of copyrightable materials Your support of the author’s rights is appreciated http://us.penguingroup.com Table of Contents Title Page Copyright Page Dedication PREFACE THURSDAY March 13, 2008 THURSDAY EVENING March 13, 2008 FRIDAY March 14, 2008 LATER FRIDAY March 14, 2008 SATURDAY March 15, 2008 LATER SATURDAY March 15, 2008 SUNDAY March 16, 2008 EPILOGUE NOTES BIBLIOGRAPHY INDEX To the 14,000 people who worked at Bear Stearns CAST OF CHARACTERS At The Bear Stearns Companies Alan Schwartz, chief executive Sam Molinaro, chief financial officer Bob Upton, treasurer Tom Marano, head of mortgages Paul Friedman, chief operating officer of the fixed-income division Jimmy Cayne, chairman Alan “Ace” Greenberg, director and former CEO Vincent Tese, lead director Richie Metrick, investment banker Carl Glickman, director Tim Greene, cohead of the fixed-income funding desk Steve Meyer, cochief of the equities division Pat Lewis, deputy treasurer Jeff Mayer, cohead of the fixed-income division David Kim, internal lawyer Steve Begleiter, head of corporate strategy At JPMorgan Chase & Co Jamie Dimon, chairman and CEO Steve Black, cochief of the investment bank Bill Winters, cochief of the investment bank Matt Zames, head of foreign-exchange and interest-rate product trading Steve Cutler, general counsel Doug Braunstein, head of corporate finance At the Federal Reserve Tim Geithner, president of Federal Reserve Bank of New York Ben Bernanke, chairman of the Federal Reserve Board Kevin Warsh, governor of the Federal Reserve Board At the U.S Department of the Treasury Hank Paulson, secretary Bob Steel, undersecretary Advisers to Bear Stearns Gary Parr, deputy chairman of Lazard Ltd Rodge Cohen, chairman of Sullivan & Cromwell LLP Dennis Block, senior partner, Cadwalader, Wickersham & Taft LLP At J.C Flowers & Co., LLC Chris Flowers, founder Jacob Goldfield, adviser John Oros, managing director Third Parties Lloyd Blankfein, chairman and chief executive of Goldman Sachs Group, Inc Gary Cohn, copresident of Goldman Sachs Group, Inc Josef Ackermann, chairman of Deutsche Bank AG John Mack, chairman and chief executive of Morgan Stanley Warren Buffett, chief executive of Berkshire Hathaway Inc PREFACE This book was born of a three-part series I wrote for the Wall Street Journal in May 2008 about the demise of The Bear Stearns Companies Published two and a half months after a devastating run on the investment bank, the articles detailed the battle for survival that had been waged inside Bear during its waning months and days as its employees fought fearful lenders, hesitant trading partners, and, worst of all, clients who had lost their faith The series struck a chord with many Journal readers; after its publication, I received hundreds of e-mails and phone calls with comments—the vast majority admiring But the most gratifying feedback came from a father of two young children who had worked in Bear’s equities department When his kids were old enough, he said, he planned to give them the Journal stories to read “Then,” he told me, “they’ll understand what happened to Daddy’s career.” His words underscored the brutal impact that the Bear Stearns collapse—and the credit crisis that spurred it—has had on hundreds of thousands of workers in the U.S economy For Street Fighters, I selected the most dramatic three days of the Bear saga and examined them hour by hour; from the evening of March 13, when Bear executives realized they were nearly out of cash, to the evening of March 16, when Bear directors approved the firm’s original sale to J.P Morgan for $2 per share I wanted to take readers through that agonizing weekend as if they’d been inside 383 Madison Avenue themselves I hope I’ve succeeded I am deeply indebted to the roughly one hundred people who availed themselves to me for interviews The vast majority did so anonymously, with the understanding that their recollections would not be attributed to them by name, job description, or employer Scenes containing direct quotes or thoughts were reconstructed through interviews with the subjects themselves or, where that wasn’t possible, with close associates of those subjects who were familiar with their words and thoughts I have attempted to corroborate those quotes, thoughts, and situations with all the relevant parties Cases in which a speaker strongly disagreed with other sources’ recollections of his or her quotes or thoughts—or in which the speaker refused to comment on the quote one way or another— have been footnoted in the text This book would not have been possible without the help of many friends, colleagues, and advisers I am grateful to Robert Thomson, the Journal’s editor in chief; Nik Deogun, deputy managing editor; and Ken Brown, money and investing editor, for granting me book leave Thanks go also to Mike Siconolfi, Mike Williams, and Alex Martin, the troika of editors who brought the original series to life I owe particular recognition to Mike Siconolfi, my mentor and friend, for his ongoing advice and support For their time, encouragement, and wisdom along the way, I thank Greg Ip, Sarah Ellison, Bruce Orwall, Seth Mnookin, and Michael Lewis For their tireless handling of my many questions and enthusiasm for the book, I thank my editor, Adrienne Schultz, and my publisher, Adrian Zackheim; without them this would never have come together Thanks to Bob Barnett, Tom Hentoff, and Bonnie Nathan, who gave invaluable advice, legal and otherwise, and to Scott White and Brian Rance, for their sound technical advice Finally, my immense gratitude to Yana Collins Lehman, Felice Tebbe, Megan Hickey, and the rest of my inner circle in Park Slope Most important, I thank my loving husband, Kyle Pope; my parents, Pat and Joe Kelly; my stepdaughter, Laney Pope; and our boy, Bogart, for their patience and support Kate Kelly February 2009 then, it appeared to him that diligence was proceeding smoothly 17 A memorable confrontation over Bear’s travails would occur on Sunday, March 16, in a call Dimon held with industry executives On being asked a skeptical question by Citi chief executive Vikram Pandit, Dimon responded gruffly that Pandit should “stop being such a jerk.” 18 Cohn says through a spokesman that he and his colleagues had no trouble getting into the Bear building that day and that he can’t recall being asked to sign a confidentiality agreement 19 Days later, Paulson told Dimon in a conversation about the deal that “[the idea of J.P Morgan paying $10 per share for Bear] makes me want to vomit.” 20 Early in 2009, Sachs took a leave from Mariner to go to Washington, where he is expected to take on a senior role at the U.S Treasury, working for his old friend Tim Geithner ... member of Penguin Group (USA) Inc Copyright © Kate Kelly, 2009 All rights reserved LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA Kelly, Kate Street fighters : the last 72 hours of Bear Stearns,. .. struck between two Wall Street firms or one firm and one investor, like a hedge fund As the borrower, Bear would offer its counterparty the other bank in the transaction—a bundle of securities in... given the firm long legs through some very difficult times Founded in 1923, Bear had survived the Great Depression, the Second World War, the recession in the 1970s, the crash of 1987, and the