Andrew Sorkin - Too Big to Fail - The Inside Story of How Wall Street and Washington Fought to Save the FinancialSystem--and Themselves

Early the next morning, Erin Callan had dropped by his office, which she rarely did, and innocently asked about the story, “Do you think it will make the stock go up?”

With that it became clear to Freidheim that the leak had been her idea. Like a growing group of executives up and down the organization, Freidheim had come to the conclusion that Callan was in the wrong job, and he had grown tired of her perky self-assurance. She performed for the media as though she were on some kind of reality show. She might have pulled off the earnings call back in March, but now he questioned Gregory’s decision to put her in the job, referring to her as a “diversity hire.” He couldn’t believe she had gone off and talked to Einhorn before his speech without first consulting anyone—he’d been trying to put that fire out for a week now. And he had been furious back in April when Craig, in another Journal story, had crowned her “Lehman’s straight shooter,” as if the rest of them were a pack of untrustworthy liars. Callan just didn’t know where the line was drawn. She kept a model of a private jet on her desk and revealed details about her personal shopper to the press, blithely unaware of the resentment it inspired. The worst was when she framed a photograph of herself getting out of a limousine, from a gushy profile in the Condé Nast Portfolio magazine that pronounced her “The Most Powerful Woman on Wall Street,” and hung it on her office wall; Gregory had had to tell her to take it down.

Freidheim, now on the warpath, called security and ordered the company’s phone records searched. He soon discovered what he regarded as all the proof he needed: Callan had indeed spoken to Craig the day before. Whether that meant she had actually informed the reporter about the capital raise plans was yet to be determined. Had she revealed that the Koreans were a potential suitor? Freidheim did not know, but the phone record gave him an excuse to talk to Fuld about her.

When Freidheim arrived at Fuld’s office, he found Gregory there and proceeded to present his findings to both men. He concluded by saying that he wanted to approach Callan about the call himself, and added, “We can’t rule out firing her.”

Gregory, her mentor, was aghast at the accusation. Nobody was getting fired, and as far as he was concerned, nobody was even going to mention the matter to Callan. “She has too much on her plate,” Gregory insisted, and Fuld nodded his agreement. He simply could not afford to lose his CFO, not in the current climate, and not even if she had done the unthinkable and leaked the information.

In his heart, Fuld knew that his Korean gambit was a Hail Mary pass. Lehman’s own banking operation in Seoul was effectively a mirage; it had never produced any business significant enough even to warrant Fuld’s attention. He had also been warned repeatedly by just about everyone in the office that there were some serious doubts about the players involved. The whole success of the effort hinged on two individuals: Kunho, a well-connected banker with impeccable manners who, as far as anybody could tell, was simply unable to close any deal; and Min Euoo Sung, a former Lehman Brothers banker based in South Korea who had left the firm and had managed to snag a prestigious new appointment as the head of the Korea Development Bank. While Fuld had always liked Min—years earlier, when Min was working for Woori Financial Group, he had brought Lehman in on a joint $8.4 billion purchase of a troubled loan portfolio—some of Min’s other colleagues at Lehman were stunned by the appointment, as were a number of KDB’s staff, who, having judged his credentials inadequate, had tried unsuccessfully to stop it.

Min, however, was undeterred; he had grandiose visions. At a dinner with his new colleagues, he sang a song called “Leopard in Mt. Kilimanjaro” as an expression of his desire to be a powerful force in the world of finance. The Lehman situation presented the first major opportunity to achieve that goal. Before he had even formally started his job, Min had approached his friend Kunho about doing a deal. Kunho had in turn brought Jesse Bhattal, the debonair head of Lehman’s Asia-Pacific operations, based in Tokyo, into the talks, and the idea started to gain momentum.

What choice did Fuld have but to play this situation out? In less than a week, on June 9, the firm would be announcing its first quarterly loss—a staggering $2.8 billion—since American Express spun it off. The stock was already down 18 percent in three days. Fuld had to find capital, and at this point, he would try any avenue he could. He had been pressing his old friend Hank Greenberg, the former chairman of AIG, to put money into the company, as well as trying to get an investment from General Electric, but he couldn’t be certain that either would come through.

Certainly, Fuld did have some reason to believe that a constructive agreement might be negotiated with the Koreans. The Monday before the Lehman team had left for Asia, David Goldfarb, Fuld’s chief strategy officer, had raised his boss’s expectations.

“Korea situation sounds promising,” Goldfarb wrote in an e-mail that he also sent to Gregory. “They really are looking to restructure and open up financial services and seem to want anchor event to initiate the effort, which could be us. I still prefer a Hank [Greenberg] or GE solution, but if that is not there, we could make this strategically based as well.

“Between Kunho and ES’s [Min’s] relationship it feels this could become real. If we did raise $5 billion, I like the idea of aggressively going into the market and spending 2 of the 5 in buying back lots of stock (and hurting Einhorn bad!!). Lots to do on this, been speaking to Jesse and Kunho. Sounds like the Koreans are serious on this and are looking to do something aggressive. Could be interesting timing for them, to get some attention away from faster growth Asian economies. Could be interesting, but as we know these thing often don’t go further then the rhetoric.”

On June 1 a small team of Lehman bankers had headed to New Jersey’s Teterboro Airport and set off for Korea in the firm’s Gulfstream. The senior person aboard, Tom Russo, Lehman’s chief legal officer, had little deal-making experience, but as one of Fuld’s confidants, he could serve as a trusted pair of eyes and ears. Mark Shafir, the firm’s head of global mergers and acquisitions (and the brother of Robert Shafir, whom Gregory had unceremoniously forced to quit), was the lead deal banker, along with Brad Whitman, a talented acquisitions expert who had spent most of his career merging the nation’s far-flung telecommunications firms into a handful of powerful players. Completing the group were Larry Wieseneck, the firm’s head of global finance, and lawyer Jay Clayton of Sullivan & Cromwell. They would meet Kunho and Bhattal when they got there.

With a stop for refueling in Anchorage, the jet made the trip in nineteen hours, and on arrival the exhausted Lehman contingent took a fleet of cars to their hotel on the outskirts of Seoul. The Shilla was a peculiar place with a lobby that looked like a spaceship, but at least it had a bar.

The first meeting in Seoul involved only lower-level officials of KDB and Hana Financial, which was also considering an investment. Shafir and Whitman could tell immediately that this was not a deal that was likely to happen. Neither Korean firm had brought along lawyers or hired its own U.S. advisers. And Min, who had not yet officially started as chief executive of KDB, could not even take part in the talks.