Can this man save Wall Street? page 3
"When I got to AIG, every investment banker in the country was calling me," recalls Robert Willumstad, who was CEO of the insurance giant from June 15 to Sept. 16 of this year. Willumstad hired BlackRock because he did not want anyone else to see the extent of the damage in AIG's portfolios.
One week into his tenure at AIG, Willumstad gave BlackRock a mission: to evaluate the risk in the $77 billion credit default swap portfolio that was destroying the company. He needed to learn what the holdings were really worth to figure out whether he should sell or write down the portfolio.
For weeks the team at BlackRock Solutions worked around the clock - taking each individual swap, following its chain down to the original borrower, and assessing the risk of whether the loan would default. By the end of August, BlackRock had come up with some viable numbers, and Willumstad was preparing to use them to present his 90-day strategic review on Sept. 25. He never got to it.
The weekend Lehman started going down, AIG was caught in that firm's back draft. As AIG desperately tried to find an 11th-hour capital infusion, the team at BlackRock worked nonstop to present its findings to potential investors. "It was an all-out effort," says Craig Phillips, who, as managing director of BlackRock Solutions' financial advisory group, was at AIG that weekend.
Phillips knew it was game-over on Monday, Sept. 15. That night, he was standing outside a conference room at AIG's lower Manhattan headquarters, waiting to present BlackRock's analysis of AIG's books to potential capital providers gathered inside. Just as Phillips was about to enter the room, he says that a group of officials from the Fed appeared, marched into the conference room, and shut the door. A few minutes later the door opened, and the entire group walked out.
One potential investor announced, "We're going over to the Fed," and the group headed over to the government's building a few blocks away. The next day the Federal Reserve announced that the government was taking over 80% of the company in exchange for an $85 billion loan. Willumstad was fired. His successor, Ed Liddy, has now also hired BlackRock.
BlackRock gets paid - usually in the form of a flat fee negotiated at the start of a job - regardless of whether a client lives or dies. Still, BlackRock executives have come to view companies that do survive as wins. Last month Mitsubishi UFJ Financial Group hired BlackRock Solutions to evaluate Morgan Stanley's books as the Japanese company was mulling a $9 billion bid for the troubled investment bank.
BlackRock had worked with Morgan Stanley a year earlier and was hoping the bank would come through the crisis in one piece. In the midst of negotiations, wild swings in the market pummeled Morgan Stanley's stock. It looked as though the bank might collapse, as investors and regulators lost confidence and questioned the valuation of Morgan Stanley's assets. BlackRock's analysis of the risk helped keep the deal from falling apart. "It gave us added credibility," says an executive at Morgan Stanley.