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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
Geithner pleaded with FSA Chairman Callum McCarthy to waive the shareholder
vote, but McCarthy wanted the New York Fed to provide the guarantee instead of
Barclays. Otherwise, according to the FSA, “Barclays would have had to provide a
(possibly unlimited) guarantee, for an undefined period of time, covering prior and
future exposures and liabilities of Lehman that would continue to apply including in
respect of all transactions entered into prior to the purchase, even in the event the
transaction ultimately failed.”
For Paulson, such a guarantee by the Fed was unequivocally out of the question.
The guarantee could have put the Fed on the hook for tens of billions of dollars. If the
run on Lehman had continued despite the guarantee, Barclays’ shareholders could re-
ject the acquisition, and the Fed would be in possession of an insolvent bank.
Baxter told the FCIC that Barclays had known all along that the guarantee was re-
quired, because JP Morgan had to provide the same type of guarantee when it ac-
quired Bear Stearns. Indeed, Baxter said he was “stunned” at this development. He
believed that the real reason Barclays said it could not guarantee Lehman’s obliga-
tions was the U.K. government’s discomfort with the transaction.
On Sunday morning, Treasury’s Wilkinson emailed JP Morgan Investment Bank
CEO Jes Staley that he was in a meeting with Paulson and Geithner and that things
did not look good. He concluded, “This doesn’t seem like it is going to end pretty.”
In another note a little more than an hour later, he added that there would be no gov-
ernment assistance: “No way [government] money is coming in. . . . I’m here writing
the usg coms [United States government communications] plan for orderly un-
wind . . . also just did a call with the WH [White House] and usg is united behind no
money. No way in hell Paulson could blink now . . . we will know more after this
[CEO meeting] this morning but I think we are headed for winddown unless bar-
clays deal gets untangled.”
It did not. Paulson made a last-ditch pitch to his U.K. counterpart, Darling,
without success. Two years later, Darling admitted that he had vetoed the trans-
action: “Yeah I did. Imagine if I had said yes to a British bank buying a very large
American bank which . . . collapsed the following week.” He would have found
himself telling a British audience, “Everybody sitting in this room and your chil-
dren and your grandchildren and their grandchildren would be paying for years to
come.” That Bank of America had taken itself out of the picture may have played a
role in Darling’s decision: “My first reaction was ‘If this is such a good deal how
come no American bank is going to go near it?’” So Darling concluded that for Bar-
clays to accept the guarantee, which could have a grave impact on the British econ-
omy, was simply out of the question: “I spoke to Hank Paulson and said ‘Look,
there’s no way we could allow a British bank to take over the liability of an Ameri-
can bank,’ which in effect meant the British taxpayer was underwriting an Ameri-
can bank.”
Following that decision in London, Lehman Brothers was, for all practical pur-
poses, dead. Cohen, Lehman’s counsel at the time, told the FCIC, “When Secretary
Paulson came out of the meeting with Geithner and Cox, they called Lehman’s presi-
